Smile! You Can Retire

Here’s a tantalizing prospect: Suppose you really do have enough money to retire. That’s not the message we usually get from downbeat commentators, but it’s the refreshing perspective senior editor Jane Bennett Clark offers in How Much You Really Need to Retire. Jane points out, for example, that retirement planners generally recommend that you have enough savings at the end of your working life to replace 70% to 85% of preretirement income—and sometimes even more. But your biggest spending years are when you’re raising kids. Depending on your lifestyle preferences in retirement, “you might get along just fine with 60% of your preretirement income,” Jane writes.

And just as you could be overestimating your expenses, you could be underestimating your income. In a recent report, Sylvester Schieber, a former chairman of the Social Sec­urity Advisory Board, and Andrew Biggs, a former principal deputy commissioner of the Social Security Administration, point out that in accounting for household income from retirement plans, government figures based on the U.S. Census Bureau’s Current Population Survey include only payments made on a regular, periodic basis. As a result, monthly payments from a defined-benefit pension or an annuity are counted as income, but as-needed withdrawals from 401(k) plans and IRAs are not. Schieber and Biggs estimate that the figures ignore at least 60% of retirees’ income.

Furthermore, they say that government statistics tend to underestimate the share of income that Social Security replaces. Using their methodology, the typical retiree would receive a Social Security benefit equal to about 55% of his average lifetime income, rather than the 40% generally reported by Social Security; a low-income retiree would receive about 70%.

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In real life, a new T. Rowe Price survey of recent retirees and near-retirees age 50 and older who have 401(k) plans or rollover IRAs is also upbeat—89% of retirees say they are somewhat or very satisfied with retirement so far. They report that they are living on 66% of their preretirement income, on average, and 57% say they live as well as or better than when they were working.

A head start. Of course, how well you fare in retirement depends on how well you prepare while you’re still working. Research by the Employee Benefit Research Institute shows that one of the most important factors in determining whether you’ll have enough income is participation in an employer-based defined-contribution plan. In its 2014 Retirement Confidence Survey, EBRI found that workers with money in an employer-based plan or an IRA are twice as likely to be very confident about their retirement prospects as those without a plan. Annuitizing a portion of retirement savings, having long-term-care insurance and seeking professional advice also increase the likelihood of a secure retirement. Workers who estimate how much they’ll need tend to boost both their confidence and their savings.

Jane’s cover story gives you a big head start on your planning. But we don’t stop there. Kiplinger’s is teaming up with the National Association of Personal Financial Advisors to offer free retirement advice on September 25 between 9 a.m. and 5 p.m. Go to http://live.kiplinger.com to chat with a financial adviser. And once again this year, we are the official media sponsor of Financial Planning Days throughout the month of October. You can get a free in-person consultation with a certified financial planner at events in cities across the country (visit FinancialPlanningDays.org). Please drop by.