Can you afford to retire?

• Author: Schnepper, Jeff A.

BENEFIT CONSULTANTS have developed computer models to help their clients answer the question: Can you afford retirement? These models attempt to provide personalized projections showing how close Social Security, pensions, 401 (k) plans, and other savings come to meeting retirement income needs, given appropriate savings rates and investment strategies.

The results have not been favorable. In one case, a Texas retail chain found that one-third of its workers aged 50-55 would not be able to retire at their current standard of living, even at age 70. It has been estimated that Social Security will cover only 45% of the needs of married individuals earning $50,000. Moreover, because women live longer than men, a woman who earns $50,000 annually, but lacks a pension, on average, will have to save an extra three percent of pay every year after age 45 in order to retire at 65.

A larger percentage of people will live until retirement, and live longer during retirement, than any prior generation. It is more essential than ever that today's population plan for retirement. The factors that must be reviewed and understood to prepare for retirement include the magnitude of the financial requirements facing you during retirement; the impact of possible future inflation; the effect that financial well-being has on quality of life; and planning alternatives that lead to financial self-sufficiency.

Many current retirees have found their retirement to fall short of the "golden years" ideal. If you are complacent about saving, you should become aware of the financial problems that force retirees to worry about the adequacy of their income or make them financially dependent on others. For example:

* Even in the most generous employer-sponsored plans, retirement income typically only replaces about one-half of a person's salary.

* The combination of an employer-sponsored retirement plan and Social Security will not provide adequate funds for maintaining the pre-retirement standard of living.

* Many people will have to deal with deteriorating health during their later years. Poor health not only creates the problem of higher medical bills, but means increases in the purchase of services that you used to do yourself--home maintenance and repairs, for example. You can not depend upon a health bill passing Congress that will supplement Medicare sufficiently during your retirement.

* Rising inflation forces many retirees either to work part time at low wages to...