Are you ready to retire? Make sure you've saved enough

Are you ready to retire? Make sure you've saved enoughWill you run out of money in retirement? New research from the Employee Benefits Research Institute shows that even for well-earning Baby Boomers and Generation Xers, there's nearly a 50% chance that will happen.

According to the research, 41% of people in the lowest 25% of American earners ($0 -- $11,700 a year) were likely to run short of money after 10 years in retirement, and 57% after 20 years. Those percentages continued to shrink as earnings increased, but 5% of the highest 25% of American earners ($72,000 and up) are likely to run short of money after 10 years in retirement and 13% after 20 years. That seems especially troubling on a day that Willard Scott wished happy birthday to a 114-year old and 110-year old in succession.

And it means that nearly half of Boomers and Xers are not going to have enough money during their retirement to pay for the basics, let alone the added health care expenses that can run six figures or more, explains EBRI's Jack VanDerhei.

If there's a solution it lies elsewhere in the research. Automatically enrolling workers into 401(k) and other defined contribution plans seems to be one way to get them to save more. The passage of the Pension Protection Act in 2006, brought down the barriers for those employers who wanted to auto-enroll people into their retirement plans, says VanDerhei. It's been hugely successful. In companies that have automatic enrollment, 80% to 90% of people are in the company retirement plan. In companies that don't have it, half that many people are in. And 401(k) participation reduces the risk of running out of money to 20%. That, says VanDerhei, is significant.

That means -- if you work for a company with a plan -- do not opt out. Get into the plan and contribute at least enough each year to qualify for the complete company match. If your company offers to automatically raise the amount you contribute each year, sign up for that, too. And when you change jobs, leave the money in your company's plan or roll it into an IRA. Don't withdraw.

If you're among the 60% of the private workforce – including most of the 32 million Americans working for companies with fewer than 10 employees – that aren't offered a 401(k), you need to cobble together a solution on your own. Start by contributing the maximum to an IRA (Roth or Traditional) but understand the $5,000 a year you can kick in ($6,000 after age 50) won't be enough to get you through a long retirement. Fund another brokerage account even if you don't get the tax deduction, to make up the slack.

Know how much you're aiming for. One thing that keeps people from saving is wishy-washy goals. It's tough to save for "retirement" when you don't know what that looks like or how much money you'll need. To get a sense the ballpark estimator, a retirement calculator at is a good place to start.

And whether you go with a 401(k) or an IRA, unless you're a real expert at knowing what to do with your retirement money, put it into a target-date retirement fund that will make sure your assets are appropriately allocated for your age.

EBRI's VanDerhei studied the asset allocations of 24 million people in 401(k)s. What he saw was that 21% of people within 10 years of retirement had 90% of their money in equities. No surprise they got killed in the market's sell-off. Target-date fund participants within 10 years of retirement, on the other hand, had half their money in equities. That put them in much better position.
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