Insecure Retirement

May 2, 2002 -- Frank and Louise Bonacquisti know they will not be able to afford the retirement they wanted.

"We did the smart things and unfortunately the smart things were not good enough," says the 62-year-old former Navy man whose military pension of $25,000 a year seemed adequate 15 years ago.

Today that's barely half his income. The Poulsbo, Wash.-resident hoped to supplement his pension with the $500,000 he'd saved in his 401(k). But that lost half its value when the stock market collapsed.

Financial planners say to live comfortably in retirement, you need enough savings to guarantee 75 percent of your pre-retirement income for at least 20 years, assuming you retire at 65.

But now a new study comes to a grim conclusion — by that yardstick, the majority of Americans will not have enough money to maintain their standards of living in retirement.

Shift Away from Pensions Hurt Many

An especially alarming finding in the study is that Americans' nest eggs shrunk even during the stock market boom. Between 1983 and 1998, when the Dow Jones industrials rose 777 percent, the median retirement wealth of Americans fell 11 percent, from $197,000 to $175,000.

Some simply didn't save enough. Others invested their savings badly. The bottom line, according to the study, is that the shift away from company-managed pension plan — to self-managed 401(k)'s — has hurt many people.

Explains Christian Weller of the Economic Policy Institute, which published the study: "The traditional benefit plans are safer in terms of retirement savings because … the individual will get a monthly benefit that is guaranteed by the employer, whereas with a 401(k) plan the individual is basically by himself."

Feeling very much on her own is 54-year-old Karen Zarky of St. Louis. She is among the 25 percent of Americans with neither a traditional pension nor a 401(k). For the last 10 years, her … savings, now about $100,000, have taken a back seat to putting four children through college.

"It just was very expensive. Or we wanted to take a trip. Or something needed to be done on the house," she recalls. "There was just always something that was more important than putting that money away in a savings account."

Pay Yourself First, Expert Advises

But personal savings are a big part of the retirement equation, says financial planner Kevin Ellman. And it's best to start early.

"I tell people to pay themselves first, to decide on a savings target, 10 percent to 15 percent of their income, put that into a retirement savings plan, and force themselves to live with what's left over," he explains.

Ellman tells those who start in their 40s or 50s they'll need to save as much as 25 percent of their annual income. "Usually they faint," he laughs. "It's a challenge. It's a real challenge."

And it's a challenge many will never be able to afford. Some 15 percent of Americans currently have no retirement savings. And almost half of retirees age 60 or older say Social Security is their biggest source of income.

Many 50-somethings try to play catch up, putting away as much as 25 percent of their income into savings. But starting that late, the reality is many will have to work well past 65 to be financially secure.

Only a third of Americans have even tried to calculate what they'll need to retire comfortably. Financial planners say once they do, they often change their savings habits.

Tips: How to Invest for Your Retirement

But with Americans better spenders than savers, and with the average nest egg in this country now less than $50,000, they have good reason to be worried. For many, the retirement dream of travel, leisure and financial freedom is more likely just that … a fantasy.