Why You Can Relax About Retirement

FIVE-OH (WHISPER: 50)--AN AGE that gets one's full attention. Middle-aged boomers are suddenly starting to hear the shuffling footsteps of time. Back in their innocent, three-oh days, they thought they'd be retired by now. Instead, they're wondering if they'll ever have the money to relax. It's becoming conventional wisdom that you need $1 million--make that $2 million--to retreat to the beach. The numbers get wilder as boomer panic escalates and Wall Street pumps up its sales pitch for buying stocks.

Hardly anyone will have that kind of money, which is feeding a river of doomsday predictions. You'd think that an army of middle-class octogenarians will wind up sleeping under newspapers in the parks. Don't believe it. You're going to need more money than you're saving now, but you know that and you're working on it. Boomers should lighten up on angst.

Boomers sans angst may not qualify as boomers at all. But for middle-class workers, the news ain't all bad. Several trends are pushing you in the right direction:

Boomers, on average, have higher real incomes than their parents did, according to a 1993 study by the Congressional Budget Office. In real dollars, households headed by people 35 to 44 earned 53 percent more than the comparable age group in 1959. Those 25 to 34 earned 35 percent more. Household wealth, such as savings and home equity, are higher, too.

A large percentage of women are now in the labor force, earning their own pensions and building their own 401(k)s. Poverty among older singles should drop. For working couples, two jobs mean two retirement checks and twice the chance of copping a company-sponsored health plan.

Contrary to myth, pension coverage has greatly improved since the days when our parents retired. Back in 1950, only 25 percent of the work force had an employer-sponsored plan. Today it's 47 percent. The late 1980s saw a modest drop in the number of people entitled to receive benefits. But since then participation has risen to record heights. We should worry about those without protection, but no one has stolen the boomers' retirement plans away.

Today's most common workplace plans--401(k)s and 403(b)s--require you to contribute money of your own. Skeptics say they're not as good as old-fashioned pensions, but in fact they can be better paying and more secure, says David Wise, a professor at Harvard's John F. Kennedy School of Government. You do have to fund the plan, and some boomers don't contribute enough. But whatever you save can be moved from job to job. Workers who leave traditional plans after just a few years get very little out of them.

Each age group coming up is saving more than the group before. For example, take 50- to 54-year-olds--the gang that time is creeping up on. The portion with tax-deferred retirement savings rose to 46 percent in 1991, from 36 percent in 1984, Wise says. Their median real financial assets rose 40 percent.

Two thirds of current workers expect to work after they "retire," says Dallas Salisbury, president of the Employee Benefit Research Institute (EBRI) in Washington, D.C. That's a lifestyle choice. The longer you work, the less you need to save.

Employers today don't go looking for older part-timers, but they never used to give flextime to working mothers, either. Once there's a large older population available for small change, companies will find ways to employ it. Del Webb, which develops Sun City retirement communities, now offers detached guest houses, usable as home offices.

Younger boomers grumble that they missed the huge run-up in housing prices that their elders enjoyed. But this isn't as critical to your retirement as you think. Many older people never sell their homes, so the size of their equity doesn't matter all that much. It counts chiefly as a buffer against some awful financial reverse.

Boomers, on average, should readily match their retired parents' standard of living, says James Smith, a senior economist at Rand in Santa Monica, Calif. The question is whether they'll be able to keep the lifestyles they have now. Based on telephone surveys (which may understate available assets), the average boomers have only a third of the money they'll need, argues economist Douglas Bernheim of Stanford University. That's for accounts specifically labeled "retirement savings," plus a portion of other assets. Counting all assets (but not homes or potential inheritances), their pots might be 45 percent full. Married couples, households earning more than $60,000 and workers with traditional pensions are faring better than others. They're not home free but they're further along than the scaremongers say.

Workers themselves have grown sharply more pessimistic this year about their current savings rate. "That may actually be good news," EBRI's Salisbury says. They're getting a firmer grasp of what they're going to have to put away.

YOUR NEXT STEP: A TRANSITION to a different kind of spending plan. You'll have enough stuff and will start buying extra investments instead. Americans' peak spending years run from 45 to 54, according to the Bureau of Labor Statistics. After that, expenses ratchet down, especially after 65. If you doubt it, look harder at the lives of today's retirees. When they first quit work, they may travel a bit more. But in general they live simply and less expensively. That's what retirement is about.

What might go wrong? You could need even more money than the standard forecasts say. To take one obvious example, you will almost certainly have to pay more of your own medical expenses--both out-of-pocket costs and higher health-insurance premiums. Social Security benefits may shrink in some way, especially for the well-to-do. If you had children later in life, you face college costs just when you ought to be doubling your retirement savings (a prediction: boomers' kids will be covering more of their own college costs). Long-lived parents may spend what you thought would be your inheritance on nursing-home expenses. Doing better than earlier generations when you're 50 doesn't guarantee that you'll still be ahead of the game when you reach 65.

The "risk" you most underestimate is your own longevity. Social Security projects an average life expectancy of about 81 in 2070, compared with 76 today. But Ronald Lee, professor of demography at the University of California, Berkeley, thinks the average will be more like 87. Many will live to their 90s and even 100. Yet retirement plans often zero out at 85. To see where you are, call for T. Rowe Price's free retirement planner (800-638-5660). For software, try T. Rowe Price (800-541-1472), Vanguard (800-950-1971), Fidelity (800-457-1768) or Quicken Financial Planner (800-446-8848; disclosure: I worked on Quicken).

Safety net: A significant fraction of people reach retirement age with virtually no financial assets of their own. They're rescued by Social Security and maybe a pension guaranteed by their employer. Young people overwhelmingly say that Social Security will fail. But it's solvent for at least 30 years, and could run in perpetuity with minor tax hikes and modest increases in the retirement age. After the baby boomers die, a more normal proportion will exist between old and young, with large numbers of workers financing a smaller retirement group. Our own attitudes threaten the program most. If we disbelieve, we withdraw support--and there goes the safety net.

What's the answer? "Save more and keep working," says Olivia Mitchell, director of the Pension Research Council at the Wharton School of the University of Pennsylvania, who says that phrase pretty much sums up her own retirement plan. Policymakers need to restructure both private pensions and Social Security, to discourage retirements earlier than 65. Any new tax breaks should focus on getting workers to start or expand their personal savings plans. Boomers sans angst may know that they already have a modest post-work life in hand. So wind down the worry but wind up the savings to do better for yourself.

Retirement?  Go Figure







Workers coverd by pensions don't have to save as much for



retirement as worksers who aren't.  Here's how much of your



salaryyou might have to save each year to have an old-age income



equal to 80 percent of your final pay, assuming you live until 90



and start your fund from scratch.