Personal Finance: Retire poor? Don't think about it

Are you worried that you won't ever be able to retire, or have enough money to put food on the table and enjoy life if you do?

If so, you might be overly hard on yourself - penny-pinching when it's not necessary and perhaps missing out on enjoying life today. On the other hand, if you aren't worried at all, or haven't figured out whether you are saving enough for your future, you could be heading toward a miserable retirement, complete with the eventual realization that banks do not give loans to 68-year-olds to buy food, fill gasoline tanks, or pay electric bills.

Studies by diverse think tanks show that most Americans retire without ever calculating whether they will have enough money for their future. They eyeball their savings, and when they see a sum that looks large compared with their usual pay, they assume it is enough and retire. Too often they find out later that taxes, inflation, and unexpected living expenses are putting them in a precarious position.

Women are more at risk of far outliving their savings because they live longer than men, and on average they struggle more to calculate what they will need and what they can afford to spend, according to research by Annamaria Lusardi for the Pension Research Council at the University of Pennsylvania's Wharton School. Hispanics, African Americans, and low-income people generally are also at greater risk, but Lusardi has found that people of any income, sex, race, or education are poor at figuring out how much they will need to retire. Only 42 percent of people try to figure it out.

And the highest income group tends to be the most overly confident, according to research by Jason Seligman, a public affairs assistant professor at Ohio State University.

Having gone through the financial punishment of the last three years, many would rather not face reality. A recent study by Fidelity Investments found that 30 percent of Americans nearing retirement do not want to know how they stand. There is a sense of gloom - a result of job losses and plunging 401(k)s and home values after a recession so harsh that Americans feel vulnerable. That is even if they have jobs and are saving money.

Research shows that people tend to overestimate, but only 13 percent of Americans are very confident they will have enough savings for their nonworking years, reports the Employee Benefit Research Institute (EBRI). It is the lowest confidence level the institute has measured.

Still, too many people might be overly disheartened. According to the Center for Retirement Research at Boston College, 53 percent of Americans are not likely to have enough money to keep living the lifestyle they are accustomed to in retirement. But that means about half of Americans do not have to fret, and even many who are behind could catch up if they calculated what they would need and stashed more savings away. Try the "ballpark estimate" calculator at http://www.choosetosave.org.

But people with jobs have more control than they might realize. An EBRI poll of Americans recently showed that almost two-thirds think they could save $25 more a week than they now do. And most could do it fairly effortlessly by cutting out some entertainment or restaurant meals.

A person with $100,000 in savings, who invested another $25 a week in a balanced mutual fund of stocks and bonds, would end up with about $623,900 after 25 years if the return averaged 7 percent a year.

That would let the person use $24,956 the first year of retirement, following a rule of thumb of not removing more than 4 percent of savings the first year. Removing more means a person risks running out of money. After the first year, if the person invests roughly half in stock mutual funds and half in bond mutual funds, he or she can increase the withdrawal 3 percent to cover inflation - meaning a $25,705 withdrawal the second year.