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Crunching the Numbers: How Much Do You Need to Retire?

• Home equity is harder to tap. House values have taken a drubbing in many parts of the country. And even if yours hasn’t, selling might be harder, as mortgage lenders have tightened up their lending requirements for would-be buyers. Stewart says some “brag that they aren’t worried about their retirement savings, because they have a million dollars waiting for them in the value of their home.” But she warns them that they need to be prepared for the possibility that it might not be easy to pull that money out of their house when the time comes.

• Medical care costs are out of control. This is the biggest, most frightening unknown. While the good news is that we are living longer, the bad news is, it is costing a lot more to do so. Retiree health benefits have been slashed at many corporations and a growing number of employers are eliminating health care coverage for future retirees altogether. Barely one-third of all workers now expect to have access to employment-based health insurance in retirement, down from 42 percent as recently as 2007, according to the most recent survey by the nonprofit Employee Benefit Research Institute (EBRI).

“These results show the impact of rising health care costs is widespread and growing,” said Dallas Salisbury, president of EBRI. In addition, more than half of Americans with health insurance coverage (55 percent) reported an increase in the costs they are responsible for paying under their plan in the past year, the survey found.

At the same time, medical expenses themselves are climbing rapidly. For instance, long-term costs associated with illnesses such as Alzheimer’s have the potential to wipe out retirement savings. Medicare insurance covers less and less. A single, healthy man currently age 65 will likely need $331,000 in savings to cover health insurance premiums and out-of-pocket expenses in retirement, according to a new computer simulation analysis by EBRI. A couple in the same age range will need $635,000. And those figures do not include long-term care insurance if that is needed.

Save, save, save

It is little wonder, then, that advisers like Schindler are pressing their clients to save as fast and furiously as they can. But how much is enough? What percentage, or multiple, of your final salary do you need to have saved to provide enough income to last throughout retirement at something close to your current lifestyle?

There is no easy answer anymore. It all comes down to each individual’s circumstances, and, in many ways, outlook on life. There are the easier variables—your spending, retirement age, asset allocation, health insurance plan—and there are the tougher ones, such as how long you will live. What are your health risks? (Is cancer prevalent in your family? Heart disease?) Are you really willing to forgo traveling and eating out or buying new clothes? Do you want to leave money for your grandchildren? Are you willing to work if you find there really isn’t going to be enough to live on? How comfortable are you with risk—the odds that at a robust 85, the value of your investments will shrink in a roller-coaster market swing? Those are personal questions that literally no one else can answer for you.

“The number is different for every individual, which is part of the challenge,” EBRI’s Salisbury said. “This is no longer a one-size-fits-all calculation.”

And that’s why it’s more important than ever to force yourself to take a hard look at your retirement plan. Regrettably, about half of workers say they or their spouse have not even tried to calculate how much money they need for a comfortable retirement, according to EBRI’s 2008 Retirement Confidence Survey. Take off your dreamer’s hat and be realistic, Stewart urges clients. “Focus on your current financial assets, not future assets, such as funds from the sale of a home or boat. Figure on annual returns in the 4 to 6 percent realm, not 10 or 15 percent.

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