Assess Your Retirement Savings Kitty

by Alan Lavine and Gail Liberman

How much do you need to save to reach your retirement goals?

Answer: More than you did before the bear market in stocks that started in 2000. The stock market is down -35 percent over the past 2 1/2 years.

All is not lost despite your shrinking nest egg. You need to save more. Plus, eventually, the stock market should bounce back.

When? That's the million-dollar question. In 1973 and 1974, stocks lost a stunning 45 percent. It took about five years to break even on those losses. During more normal periods, it takes about 18 months to break even from a 20 percent loss in the stock market, according to Ibbotson Associates, Chicago.

You should not have 100 percent of your 401 (k) invested in stock funds if you are close to retirement. If you have part of your retirement savings in stock funds, you must live with the volatility and invest for the long term.

The rule of thumb is that most people need 70 to 80 percent of their current income to live comfortably in retirement. Social Security should pick up some of that tab. So will other investments outside your pension.

Here are a couple of benchmarks to give you an idea how much you need to save. This assumes your retirement savings earn 8 percent annually and pays you 8 percent annually when you retire.

This may not be your exact situation. But it will help give you an idea of the amount of savings you'll be needing. For example:

* If you currently make $30,000 a year, you'd need $225,000 earning 8 percent to pay you $22,500 annually when you reach age 65. Over the next 20 years, if you earn 8 percent annually, you must save $4,917 a year to reach that goal.

* If you make $50,000 a year, you'd need $374,000 to provide you with an annual income of $37,500. Over the next 20 years, you must save $8,173 a year to reach that goal.

* If you make $70,000 a year, you need $523,000 to provide you with income of $52,500. Over the next 20 years, you must save $11,429 a year to reach that goal.

Don't forget that employers often make matching contributions to your 401 (k). So it could prove easier to hit your target.

Pension fund rules are complex. Once you retire, you must roll your pension into an IRA and receive payouts based on your life expectancy. So in the first few years of your retirement, you should receive less than 8 percent annually in payouts. In later years, you likely will collect more. The reason in a nutshell. The IRA must be depleted to zero in the 20th year if you have a life expectancy of 20 years.

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "The Complete Idiot's Guide to Making Money with Mutual Funds," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show.

More articles by Al and Gail can be found here.