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Although he may never have said it, Mark Twain, the author of Huckleberry Finn, is often credited with this quote: "Everybody talks about the weather, but nobody does anything about it." Unfortunately, just about the same thing can be said about saving for retirement: We all think about it, but we don't take much action.

In fact, your fellow Americans are, at the moment, doing an inadequate job of saving for their retirement. Early in 2005, personal saving as a percentage of disposable personal income was just 0.4 percent, according to the Bureau of Economic Analysis, an agency of the U.S. Department of Commerce. And consider these numbers from the 2005 Retirement Confidence Survey, issued by the Employee Benefits Research Institute:

  • Nearly four in 10 workers have not saved anything at all for retirement.
  • Those who have put something away are not saving nearly enough. Half the workers surveyed have set aside, on average, just $25,000.
  • About 60 percent of those surveyed have not even tried to calculate how much they'll need during their retirement years.

How can you determine how much you'll need to live comfortably during retirement? You'll need to consider a variety of factors, including the age at which you retire, your retirement lifestyle, your health and your projected longevity. To arrive at a good estimate, you may want to work with a financial professional - someone with the tools to generate several alternative retirement-income scenarios.

After you determine about how much money you'll need during your retirement years, your next step, not surprisingly, is to figure out where that money will come from. Basically, you will need to rely on three sources: Social Security, employer-sponsored retirement plans, and personal savings and investments. Let's take a quick look at each of these:


  • Social Security - No one can predict the ultimate result of the current national debate on funding Social Security. But no matter what happens, one things is clear: Social Security will only cover a relatively small percentage of your retirement income - perhaps one-fifth to one-third of what you will need. To get an idea of what you can expect, study your Social Security benefit statement when it arrives in the mail.
  • Employer-sponsored retirement plans - If you have a traditional "defined benefit" retirement plan that is based on your years of service and level of income, your employer should be able to provide you with a statement projecting your future benefits. If you have a 401(k), 403(b) or 457 plan, your income will depend somewhat on the performance of the investments within your plan. Keep close track of how your plan is doing, and make adjustments, as needed, to diversify your holdings and manage your risk.
  • Personal savings and investments - Closely monitor the performance of your IRA, stocks and other investments. If they are not producing the type of return you need to help you meet your retirement income goals, you may have to make changes over time, keeping in mind your need for diversification and your tolerance for risk.

By taking the time to calculate your retirement funding needs, and by knowing where your income is coming from, and how much you can expect, you can avoid unpleasant surprises when you retire. So, start planning today for a rewarding tomorrow.

This article has been reprinted with permission of Invstment Representative Celine Richardson of Ithaca's EdwardJones Office

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