A recent study released by the Employee Benefit Research Institute (EBRI) found that nearly half of early baby boomers are at risk of running short of money they will need for essential expenses in retirement.

In fact, 47.2% of the oldest group of boomers — those age 56 to 62 and closest to retirement — are at risk for not having enough money to pay for basic expenses and uninsured health-care costs. Late boomers — those age 46 to 55 — are at risk, too, with 43.7% likely to run short of funds at a vulnerable stage of life.

Even younger populations, such as individuals in the 36–45-year-old range of Generation X, were found to be at risk. EBRI reported that 44.5% of Generation X workers may not have enough money in retirement.

“At risk” determined by EBRI modeling as simulated to be at risk of not having sufficient retirement income to pay for basic retirement expenditures as well as uninsured health care costs.
Source: EBRI, 2010.

The message is clear for workers of all ages: start saving now.

Saving enough for retirement
The best way to save for retirement and reduce your risk of not having enough income in your golden years is to take advantage of your workplace savings plan. For most, that means a 401(k).

The study demonstrated that participation in a defined contribution plan makes a significant difference in whether the individual is at risk for running out of money in retirement. A Generation X worker with no future years of participation has an at-risk level of 60%, compared with an individual with 20 years or more of future eligibility whose risk level drops to 20%.

But a first step means figuring out what you will need to retire, which is probably one of the biggest challenges for investors.

Putting it in perspective: The Lifetime Income™ Analysis Tool
Many tend to think about saving for retirement as the need to save a single sum of money. At Putnam, we educate investors and advisors to think about retirement in terms of generating an income. That perspective makes it easier to plan.

To help participants in our 401(k) plans see how much they need to save each month to generate an estimated monthly retirement income, Putnam developed the Lifetime Income Analysis Tool.

This online tool helps investors project how much income their current retirement savings may generate in retirement and compares it with what they may need. The tool also offers up solutions to achieve their goals.

If there is a difference between the income you are on track to generate and the amount you will need, you have an income gap in retirement. The tool also provides a range of actions you can take to close that gap.

Some of the strategies that investors may employ include increasing their 401(k) contribution rate, changing their asset allocation and altering the mix of stocks and bonds, or delaying retirement a year or two.

Taking a new look at current retirement savings as a path to generating an estimated monthly income in retirement may make it easier to start planning now. For those who are closer to retirement, it’s not too late to make changes to your investment strategies or contributions to boost your savings.

As we can learn from the EBRI survey, you are not alone if you are at risk for not having enough money in retirement. But the key, once you understand that risk, is to act on it and start saving more today.

Seeking advice and guidance from a financial advisor is the best way to get started.

IMPORTANT: The projections, or other information generated by the Lifetime Income Analysis Tool regarding the likelihood of various investment outcomes, are hypothetical in nature. They do not reflect actual investment results and are not guarantees of future results. The results may vary with each use and over time. The analyses present the likelihood of various investment outcomes if certain investment strategies or styles are undertaken, thereby serving as an additional resource to investors in the evaluation of the potential risks and returns of investment choices.

Each simulation takes into account the participant’s current plan balance and investment mix, as well as his or her age, income, retirement date, contribution rate, likely future savings, and estimated Social Security benefit. The tool runs over 50 billion market simulations to provide an estimate of a monthly income likely to be generated at retirement. The Lifetime Income Analysis Tool is an interactive investment tool designed for Putnam 401(k) participants to illustrate the estimated impact of a participant’s plan balances and projected savings on income in retirement. The tool does not take into account post-tax contributions to savings. It also cannot account for dramatic changes in a participant’s personal situation, including unexpected expenses and other financial situations that may negatively affect one’s estimated monthly income in retirement.

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