Retirement readiness quiz[SIZE=-1]Are you ready to retire? This simple quiz can help you assess your progress It's hard to put on a happy face when the economy is shaky, home and stock values are falling, and food and gasoline prices are rising. Only 18 percent of the workers surveyed this year by the Employee Benefit Research Institute felt very confident they would have enough money for a comfortable retirement, down from 27 percent in 2007. That's the biggest one-year drop in the 18-year history of the institute's Retirement Confidence Survey. People who are already retired are nervous, too. Only 29 percent of them felt very sure they would enjoy a financially secure retirement, down from 41 percent last year.You don't have to be a billionaire or in denial to remain optimistic. That's because your retirement readiness doesn't have to fluctuate with the health of the economy. Instead, it should hinge on three things you can control: your spending habits, how much you've saved for retirement, and how you've invested your money. If you're dreaming of retiring early, you also need a plan to find affordable individual health-insurance coverage until Medicare kicks in at age 65 (see Get health coverage).If you can answer yes to the following six questions, you're well prepared to relish your retirement years. If you don't ace this quiz, you might need to consider changing some of your spending, saving, or investing habits.1. Will you retire debt-free?Only 29 percent of the retirees surveyed last year by the Securian Financial Group, an insurance and financial-services firm, had no debt at retirement. Nearly one in four said they had retired with debt that at least equaled the total amount of money they had in savings and investments. Carrying that much debt is stressful even if you're taking home a paycheck, so you can imagine how it feels when you're living on Social Security and your savings. Not surprisingly, nearly three-quarters of the retired debtors acknowledged that their debt affected their financial security.Eliminating high-interest credit-card debt before you call it quits is a no-brainer, but you might also want to pay off your mortgage. Granted, you may be able to get a better return on your money by investing it rather than using it to retire your home loan. Or you may not want to give up that mortgage-interest tax deduction.But don't let the pursuit of tax breaks cloud your vision. "Even at the highest income tax bracket, you're still bearing 65 percent of the cost of your mortgage," says Kathleen Muldoon, a certified financial planner and senior vice president at Carter Financial Management in Dallas. "I really want people to have their houses paid off and be debt-free when they retire. There's a psychological benefit that's hard to measure but very observable."2. Do you know how much you'll spend after you retire?You've probably heard that you'll need 70 to 90 percent of your current income to live as well in retirement as you do today. But some experts contend that you'll spend even more than you do now. Hewitt Associates, an employee-benefits consulting firm, recently predicted that because of inflation, rising health-care costs, longer life spans, and the decline in defined-benefit pensions and employer-sponsored medical benefits for retirees, workers will need to replace 126 percent of their final pay to retire comfortably.But everyone's situation is different. Say, for instance, that you still have a mortgage and you're paying college tuition bills. If you put off retirement until you've paid off your home and your kids have finished college, you should be able to get by on far less money than you needed during your peak spending years. Moreover, you won't have to pay Social Security taxes or save for retirement anymore, which will further cut your need for cash.Even if you retire those big expenses before you quit working, however, don't assume that your overall spending will immediately go down, financial advisers say. "We usually find that our clients spend the same or more after retirement," says Rick Wagener, a certified financial planner in Columbia, Md. "They have more time, and they spend more on recreation and on their children and grandchildren."As the years go by, however, your spending may actually decline. Ty Bernicke, a certified financial planner in Eau Claire, Wis., has researched retirees' spending habits. "Conventional wisdom assumes that you'll continue to spend at the same pace as you progress through retirement," he says. "But the data show you spend less on everything as you age, with the exception of health care."People ages 65 to 74 spend 20 percent less than 55- to 64-year-olds on clothing, entertainment, food, and other items, according to the U.S. Bureau of Labor Statistics' 2006 Consumer Expenditure Survey. In addition, those age 75 and older spend 30 percent less than people from 65 to 74 years old.Most retirees don't rein in their spending because they're in danger of running out of money. Indeed, statistics show that median net worth increases with age at all income levels. Such behavior isn't limited to the frugal generation that grew up during the Great Depression, either. No matter if you're a member of the Greatest Generation or a baby boomer, it seems a safe bet that you'll spend less money as you get older and become less active.3. Will you receive a pension?If your employer sponsors a defined-benefit plan, the kind that provides a set income stream for life, you won't have to rely as heavily on your personal savings to supplement your benefits from Social Security. But make sure you really have a pension coming to you before you buy a big-screen TV with money that you should instead stash in your 401(k) plan.While 59 percent of the workers that EBRI surveyed said that they expected to receive a traditional pension, only 41 percent reported that they or their spouses were currently enrolled in one. Thirteen percent of those who expected to receive pensions said that they were counting on a future employer to provide one. That's unlikely, given that employers have been ditching traditional pension plans in favor of defined-contribution plans like 401(k)s over the last two decades.If you're lucky enough to have a pension, find out how much you can expect to collect if you retire at the regular retirement age, usually 65, or earlier. For instance, you might be able to collect full benefits as early as age 62 but receive only 60 percent if you retire at 55.You may be entitled to a pension from a former employer as well. If that's the case, be sure to keep the plan's administrator up to date on how to contact you. You should also get a copy of the pension's Summary Plan Description, if you don't already have one. The document explains how your benefits are calculated and how to start claiming them.4. Do you know how much you'll get from Social Security?If you don't, it's easy to find out. Each year, about three months before your birthday, the Social Security Administration should send you a statement detailing your earnings history and showing how much you'll collect if you retire at 62, at your full retirement age, or at 70. If you haven't gotten one recently, call 800-772-1213 to request one or go to the Social Security Administration's Web site. Click on "Your Social Security Earnings Statement."5. Do you know how much savings you'll need?If you've tried to figure out how big a nest egg you'll need to supplement other sources of retirement income, you're in the minority. Only 47 percent of workers have attempted to do this. You can hire a financial planner to crunch the numbers for you, or you can do it yourself using online software like Financial Engines or T. Rowe Price's Retirement Income Calculator.6. Is your portfolio well diversified?You can sock away a ton of money in your 401(k) plan, an IRA, or a taxable account, yet still be unprepared for retirement if your investments are inappropriate. One common mistake is stashing too much cash in your employer's stock. If it sinks, you could be one of those unlucky retirees who must go back to work. Financial planners generally recommend that you keep no more than 10 percent of your portfolio in your employer's stock.Another common mistake, particularly in bear markets, is to shun stocks and put all your assets into fixed-income securities like bonds or certificates of deposit. That's a bad move because you won't have any money invested for growth, so you won't be able to keep up with inflation over a retirement that can last 30 years or longer.Even if you do everything right with your portfolio, you can be hurt if you retire into a bear market, defined as an overall market decline of at least 20 percent. You'll have to reduce withdrawals from your portfolio temporarily or sell stock when the market is down, and you won't have those assets invested to profit when the market recovers. Unfortunately, it's tough to time your retirement to avoid a bear market, as they occur frequently—about once every three or four years.Wagener suggests that retirees keep an amount equal to about one to two years of living expenses in a liquid account to draw from. That avoids the need to sell stocks or equity funds in a bear market. If you answered all six questions affirmatively, you're ready for retirement. So go ahead and sing that old Bobby McFerrin song, "Don't Worry, Be Happy." There's no reason for you to be gloomy, even if most people are. Unfortunately, many retirees are so fretful that they never touch the retirement money they worked long and hard to accumulate.In a recent survey of adults with at least $100,000 in assets to invest, the financial services company Nationwide found that 57 percent of the retirees lived on Social Security and pensions alone. Almost a quarter of them admitted that they were afraid to spend down their nest egg.[/SIZE] [SIZE=-1]Subscribe now![/SIZE]
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