Are you heading toward a retirement crisis?

More people are worried about retirement than they need to be. The reasons for this conclusion? Depending on the information you're seeing, anywhere from 29 percent to 70 percent of Americans are at risk for an insecure retirement. Yet 92 percent of respondents to a PBS survey already believe there's a retirement crisis, while other surveys show large numbers of people lack confidence about being able to afford their retirement.

Clearly, a large number of people should be worried about their retirement, but there's debate about exactly how large that group is. It's also clear that some people who are worried might end up doing just fine. The most important question for you: Are you confronting a retirement crisis, given your unique goals and circumstances?

The various measures of retirement readiness all make critical assumptions regarding your age at retirement, the amount of retirement income needed for a secure retirement, the impact of medical and long-term care expenses, and how you deploy your retirement resources and home equity. These assumptions have a significant impact on the conclusions drawn from this information.

For example, most measures of retirement readiness assume you'll work full-time until age 65, then retire full-time at that age. They don't consider the possibility that you'll work beyond age 65, either part-time or full-time. However, retirement readiness measures from the Employee Benefit Research Institute (EBRI), Boston College Center for Retirement Research (CRR), AonHewitt and Fidelity all show alternative measurements that conclude many people can significantly improve their retirement readiness if they work until age 70 instead of 65.

All retirement readiness measures also make an assumption about the amount of retirement income that's needed to live comfortably. Some measures assume you need an income that replaces a specified percentage of what you earned before retirement, such as 70 percent, 80 percent or 85 percent. Other measures attempt to estimate your after-tax income before and after retirement, and assume you need to maintain the same after-tax income in retirement, adjusted for inflation.

A paper from RAND assumes that most people reduce their spending in retirement compared to preretirement. To say the obvious, measures that incorporate higher spending needs in retirement will calculate more pessimistic results compared to measures that incorporate lower spending needs.

Other assumptions have a critical impact on conclusions as well. For instance, the EBRI study shows how unexpected medical and long-term care expenses expose many people to the risk of running out of money in retirement. Also, some studies assume you'll buy an annuity at retirement, while others assume you'll invest and draw down your savings. One study assumed you'll take a reverse mortgage to help finance your retirement.

A recent article in National Affairs by prominent retirement experts Sylvester Schieber and Andrew Biggs debates the assumptions made by the various measures of retirement risk. In particular, the authors point out that people's consumption patterns can substantially change in retirement due to common life events, such as no longer having dependent children or paying off the mortgage. They also assert that some retirement risk measures understate the retirement resources that are available to the population at large, thereby overstating the number of people at risk.

In support of their conclusions, they mention the RAND study, which concludes that only 29 percent of the population is at risk, and they cite other studies by researchers at the University of Wisconsin, Brookings Institution and Urban Institute that arrived at similar findings.

By now, you should realize that any measure of retirement risk depends on making a number of assumptions that may or may not reflect your unique circumstances. But instead of becoming paralyzed by fear after reading the depressing headlines, try tapping into this anxiety to give you the motivation to investigate your own retirement readiness.

Your retirement security will depend on a number of important decisions you'll make, such as:

  • Will you work in your retirement years?
  • Where will you live?
  • How much income do you need to support your basic living needs as well as your hobbies, travel, gifts and interests?
  • How can you best deploy your available resources, such as Social Security, your savings and home equity?
  • How can you protect yourself against unexpected and potentially ruinous medical and long-term care expenses?
  • What lifestyle steps can you take to decrease the odds of expensive medical conditions?

Nobody cares as much about your retirement security as you. Don't wait for your employer or the government to come to your rescue, because it's likely that they won't. Instead, take charge of your retirement, and you'll feel more confident. Act now to prevent your retirement crisis.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.