Creating a post-retirement work plan and putting more into tax-advantaged accounts can help

Saving for retirement isn't as easy as it used to be. A survey by the nonprofit Employee Benefit Research Institute found that about 1 in 4 workers describe themselves as "not at all confident" about retirement and just 13 percent describe themselves as "very confident."

Here are eight ways to turn that lack of confidence around:

Create a post-retirement age work plan.

Some 43 percent of respondents in a Bank of America survey said the current financial conditions caused them to delay their expected retirement age. Three out of 10 consumers over 50 said they now expect to retire much later than they did a year ago. Others came up with creative solutions for the money crunch: Three in 10 said they have considered working part time after they retire, and 27 percent said they have thought about moving to an area with a lower cost of living.

Don't be tempted by the cash in your retirement account.

About 1 in 5 consumers has pulled money out of retirement accounts early, according to the Bank of America survey. The most common reasons were to pay off credit card debt and to pay down a mortgage. Doing so not only generates penalties, but it also means missing out on any upswing in the market while the money is not invested. While paying down high-interest debt -- such as credit card balances -- is a priority, money should be taken out of tax-protected retirement accounts only as a last resort.

Reserve a chunk of savings for taxes.

According to the Michigan Retirement Research Center, married college graduates -- people who are otherwise among the most prepared for retirement -- often forget to consider just how much of their retirement income will go to Uncle Sam. Only 3 in 4 people in this group are prepared for retirement after taxes are taken into account; otherwise, 92 percent report being ready. Many online calculators allow users to consider taxes in their calculations.

Lower your fees.

Expenses can take a big chunk out of your investment return. But fees vary widely, typically from 0.1 to 2 percent of your total investment on an annual basis. Think tank RAND calculates that even just 1 percentage point difference in annual fees adds up to $3,380 after 10 years on a $20,000 account balance. But RAND found that when people were presented with various fund options, including one that clearly came with the lowest fees, only half selected that lowest-fee fund. One in 3 people inexplicably selected the fund with the highest fees. (All of the funds exhibited equivalent returns.) Index funds often offer lower fees, which means investors can keep more of their money.

Dust off your calculator and crunch some numbers.

According to the Transamerica Center for Retirement Studies, most of us just guess how much money we'll need once we stop working. Only 1 in 10 people does any sort of calculation at all. That might help explain why, on average, Americans are on track to replace less than 60 percent of their income during retirement. Financial experts generally recommend that retirees replace at least 80 percent, given the rising costs of healthcare.

Luckily, online tools such as this calculator make it easy to figure out how much you need to save. Banks and brokerage firms also increasingly offer calculators that can automatically incorporate your personalized information; Fidelity, T.D. Ameritrade, Transamerica, and T. Rowe Price are among those that do. If you prefer to do your own research, consider plugging your details into one of Bankrate.com's retirement calculators. Be sure to experiment with different rates of returns, inflation rates, tax rates, and lifetime expectancy, since no one can predict those factors with any accuracy.

Use special savings accounts during work breaks.

Just because you're not earning a steady paycheck doesn't mean it's a good time to put retirement savings on hold. Spousal IRAs for non-working spouses and Roth IRAs can make this easy. Roth IRAs are particularly useful for freelancers, students, and other people with unpredictable income streams, because you contribute money to the account after paying taxes on it, which means you can decide how much to contribute after considering your other expenses. If you think your tax rate is lower now than it will be when you take the money out, you'll benefit.

Save a higher percentage of your income all year long.

The Employee Benefit Research Institute reports that on average, employees contribute just 7.5 percent of their income to their retirement accounts. But most people need to save at least 15 percent to be on track, according to Vanguard founder John Bogle, and possibly even more. Instead of worrying, just save more, he urges. January is a good time to review your contribution rate and consider raising it for the year.

Use the end of the year to bulk up your contributions.

You can contribute up to $16,500 into your 401(k) in 2010; for those 50 or older, the limit is $22,000. If you're nowhere close to that amount, you can ramp up your contributions to take advantage of tax-advantaged accounts. The same goes for Roth IRAs and traditional IRAs. If you want to max out your retirement savings, now is the time to start putting more money away. (You can contribute up to the 2011 limit until April 17, 2012.)

Getting started on a few of these steps can increase your chances of falling into the small category of people who feel confident about funding their golden years.

 

 

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