Should You Stop Worrying About Retirement?

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More than ever before, people are worried about whether they'll be able to retire with financial security. Yet while gloom and doom abound on the subject, at least one group believes that today's crop of new retirees are in better shape than you might have thought.

Ready to face big challenges
Retiring is no easy thing these days. With big costs like taxes and out-of-pocket health-care expenses, as well as the uncertainty about how long you or your spouse will live, it's challenging to put together a financial plan that covers all bases.

But according to a paper published by the National Bureau of Economic Research, RAND Corp. researchers found that about seven out of every 10 people between the ages of 66 and 69 should feel confident about their retirement prospects. For certain select groups of people, the outlook is even brighter: 89% of those holding college degrees are prepared to retire securely, along with 80% of married people.

The news wasn't all good. Only 55% of singles met the paper's test, and 29% of single females without a high-school diploma are in good shape. Overall, though, the prognosis looks much better than the conclusions of some other research institutions, such as the Center for Retirement Research's finding that more than half of all households are at risk of suffering a reduced standard of living in retirement.

What's behind the discrepancy?
To understand the different conclusions, the key is to look at the assumptions and methodology the NBER paper uses. Many retirement studies make assumptions that spending will remain constant and is based on a percentage of what people earned before they retired. In contrast, the NBER paper looks at actual panel data to estimate real spending patterns over time.

In addition, the researchers found that money outflows fall dramatically after retirement. Taxes and work-related expenses are obvious eliminations, but other, more subtle factors also contribute to lower consumption during retirement. Moreover, the study took realistic mortality figures into account rather than simply assuming an average life expectancy.

Why you're not home free
Based on the NBER paper, you might think that you don't have anything to worry about. But before you decide to stop contributing to your retirement accounts, you should understand that the paper has very limited scope.

Most importantly, by focusing only on 66- to 69-year-olds, the paper targets a population that has more resources than many younger workers will have when they are older. Huge numbers of companies, including big employers IBM (NYS: IBM) , Verizon (NYS: VZ) , and DuPont (NYS: DD) , have frozen pensions or changed pension formulas to give future retirees less than current retirees are entitled to receive. Others, such as Hershey (NYS: HSY) and General Electric (NYS: GE) , have closed existing pension plans to new workers, often leaving them with defined-contribution 401(k) plans that require them to take nearly all responsibility for their retirement.

In addition, uncertainties about Social Security, Medicare, and other programs aimed to help retirees bridge financial gaps could give future retirees far less than today's seniors get. In other words, by taking a snapshot at one age cohort rather than looking at a series of age groups over time, the NBER paper may give younger workers a false sense of security about their true retirement situation.

Doing what it takes
Fortunately, for younger workers with time left before retirement, it's not too late to take action. You can put together a simple, easy-to-use investment strategy using low-cost ETFs with the help of brokers that let you buy and sell them at no commission. For investors willing to dive into individual stocks, even some of the best-known blue chips in the stock market -- members of the Dow Industrials -- pay yields of 4% or more, including AT&T (NYS: T) and Merck (NYS: MRK) . Along with investments in bonds, real estate, and other diversifying asset classes, you can bolster your retirement prospects quickly and easily.

You shouldn't spend all your time worrying about your retirement. But neither should you figure that it's just automatically going to work for you. As times get tougher, you'll want to make sure that you make an effort to ensure your financial security after you decide to stop working.

Learn more about putting together that simple ETF portfolio. Read the Fool's special report to get the names of three smart ETFs you should consider.

At the time this article was published Fool contributorDan Caplingerrarely stops worrying about something. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Fool owns shares of IBM. Motley Fool newsletter services have recommended buying shares of AT&T. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool'sdisclosure policyhelps you retire happy.

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