Stern Advice - That retirement crisis? Not so bad, after all


By Linda Stern

NEW YORK, Dec 4 (Reuters) - Don't look now, but some of thesame folks who have been spreading fear about the woeful lack ofretirement readiness among American workers have something newto say on the subject: a financial industry study that assertsthat we're doing a lot better than we think.

"Americans' retirement well-being has improved over time, assuccessive generations of retirees have been better off thanprevious generations," says the study, "Our Strong RetirementSystem: An American Success Story," being released on Wednesday.

Three organizations, the American Council of Life Insurers,the American Benefits Council and the Investment CompanyInstitute, which represents the mutual fund industry,contributed to the research and published the study.

They have a really good point: In mid-2013, the average U.S.household held $167,800 in retirement assets, includingtraditional pensions, in inflation-adjusted dollars. Comparethat with the inflation-adjusted $56,200 in 1985 or $27,300 in1975. Near-retirees (those between 60 and 64) have nearly$360,000 in their defined contribution accounts and IRAs, onaverage, the report said.

The United States now has more than $20 trillion inretirement savings and investments, up from $11.7 trillion in2000, according to the ICI.

"When we look at data and near-retirement households, theyhave accumulated significant resources. We see that they areable to retain their standard of living," Sarah Holden, seniordirector of retirement and investor research at ICI, toldReuters in an interview.

The good news represents a change in tone for the financialservices industry, which continues to use frightening messagesto push workers to bump up their 401(k) and individualretirement account savings.

For example, a separate Fidelity Investments study, also tobe released on Wednesday, is headlined: "More than half ofAmericans (are) at risk of not covering essential expenses inretirement."

That follows a report on Tuesday from the National Centerfor Retirement Research at Boston College that said 50 percentof households will not be able to maintain their standard ofliving in retirement.

"It would be nice if we could get a balance," said Holden,adding that it would be good to convey the message thatretirement success "doesn't just happen, you do have to setaside money for retirement, without getting to 'there's a bigproblem.'"

Why the new upbeat message?

The more Washington talks about budgetary pressures, themore companies that provide IRAs and 401(k)s worry aboutlegislators trimming the tax breaks they bestow on thoseretirement savings vehicles. Thus the industry is committed todemonstrating that the current retirement system works.

The latest upbeat report outlines many positives about thatsystem. For example, it asserts that defined contribution planssuch as 401(k)s are popular with workers, are a good fit fortoday's mobile work force and enjoy broad participation - withalmost 80 percent of full-time workers with access to a planparticipating.

Here is some more encouraging news about retirement and howto make sure your personal retirement picture is pretty.

- Those close to retirement are alright. "The baby boomersare not in bad shape," says John F. Sweeney, executive vicepresident for retirement and investing strategies at Fidelity.The generation, on average, will be able to cover essentialhousehold costs in retirement, he said.

Fidelity's methodology is quite conservative. It dived deepinto the actual pre-retirement spending of 2,265 workinghouseholds and then projected that retirees would spend the sameamount forever, with annual increases for inflation. Inactuality, most retirees hold their spending flat or even trimexpenses at some point during retirement.

- Younger workers have time to catch up. Most of the genericretirement studies that show average Americans NOT on track tomeet retirement expenses are averaging 25-year-olds along with60-year-olds. Young households are not, on average, on track tomeet their retirement goals. But they have decades to work, planand save.

- You may be able to spend more than you thought you couldin retirement. The rule of thumb that most retirementcalculators and advisers use is this: You can with withdraw 4percent of your nest egg in the first year, and then increasethat by 3 percent a year. But new research from T. Rowe Pricesays that the 4 percent figure "is a relatively conservativeinitial withdrawal rate."

Retirees who are willing to forego that 3 percent increasein some years - or who are willing to recalculate theirwithdrawals annually, based on the size of their nest egg - maybe able to withdraw as much as 7.5 percent in some situationsand still not run out of money in retirement.

- Workers have a big toolbox. If you're not on track to meetyour retirement goals, there's a lot you can do to get there.You can make up lost ground by working a little bit longer,putting more money in stocks, saving more and being strategicabout how and when you take your Social Security benefits,advise experts at Fidelity, T.Rowe Price and elsewhere.

Once you're retired, you can look into tax-saving strategiesand cut your housing costs. Finally, you can trim expenses asyou age, which many retirees do.

Says Sweeney, managing those retirement expenses "is thebiggest predictor of success."

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