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RISMEDIA, July 21, 2010—(MCT)—Following the job and investing horrors of the last three years, many Americans fear they will end up in retirement like Old Mother Hubbard.

But while their cupboards are likely to contain more than a bone, a sobering study recently released shows the fantasy isn’t far off the mark. About 47% of early baby boomers, now 56-62 years old, are not expected to have enough money to cover basic living expenses like food, utilities and health care through retirement.

That’s actually an improvement over seven years ago, but still a dreadful reality for many.

“Their Social Security alone will not pay for all they need,” said Jack VanDerhei, research director for the Employee Benefit Research Institute study.

Members of Generation X, ranging from 36-45 years old, should be in better shape because they have more time to prepare. Nevertheless, 44.5% of them are also expected to run out of money, the study said.

Inadequate savings will be disastrous for individuals who want to live as comfortably in retirement as they lived their working years. Even those who have saved adequately could be affected: New taxes or limits on Social Security may be required to help an overburdened system cope with so many people.

Although middle- and lower-income people are most at risk of running out of money in retirement, even the highest-income people—baby boomers now making more than $72,500—could be at risk if they have a disease or accident that requires them to enter a nursing home early in their retirement years, said VanDerhei. Nursing-home costs average $200 a day. VanDerhei estimates about 13% of the high-income group would exhaust their savings prematurely.

When Social Security was established in the 1930s, people lived on average to 61.7. Now, the U.S. Census estimates that a 65-year-old can expect to live to 78.3. About 40% of women live to 90. Because people are living longer and fewer will have the guaranteed pensions that the previous generation enjoyed, personal savings—either through 401k plans, IRAs or other accounts—are crucial.

“People haven’t saved enough and have invested poorly,” said VanDerhei.

People often skip investing when young and then discover the clock ticking toward retirement around 40 and are then too aggressive.

Prior to the recession, many baby boomers were trying to catch up for years of deficient savings by investing heavily in stocks. But the approach blew up after 2007, when the stock market crashed 56%. The study found that one in five people over age 55 had 90% of their retirement savings in the stock market.

While the full stock market, or Wilshire 5000, has climbed 67% since the worst point in March 2009, investors are still down 27%, with $5.4 trillion in stock market wealth gone on paper. An investor with a conservative mix of half stocks and half bonds would be about back to even.

The people in the best shape with savings tend to have 401k plans, said VanDerhei. With such plans, people save regularly, while people who must go on their own to a broker or mutual fund company to start an IRA tend to procrastinate.

Changes in government regulations during the last few years have encouraged employers to enroll employees in 401k plans automatically without asking for permission, and that has prepared people better for their future, said VanDerhei.

Large employers are removing 3-6% of their employees’ money from paychecks and placing it directly into a 401k. And the money is being routed into so-called target-date mutual funds that invest in a combination of stocks and bonds designed to get people ready for retirement.

Because this happens automatically, people avoid their No. 1 retirement planning enemy: procrastination. Although people can opt out of the 401k plans, fewer than 10% do, according to Hewitt Associates research.

As a result, VanDerhei said, more people are in better shape now for retirement than when he last did his study in 2003. Then, 59% of early baby boomers were in danger of running out of money, versus 47% this year.

VanDerhei said changes being considered by Congress could improve conditions more. Only about 40% of employers offer 401k plans, and the changes would let employees invest automatically in IRAs at small workplaces.

(c) 2010, Chicago Tribune.

Distributed by McClatchy-Tribune Information Services.

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