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Retirement: Get Your Retirement Plan Back on Track

By Mary Beth Franklin, Source: Kiplinger's Money Power

After the stock-market debacle, the old joke about how to make a million dollars -- "Start with $2 million" -- hit uncomfortably close to home. Face it, though: Accumulating the magic million you need to generate just $40,000 a year of income (assuming you stick to a widely accepted rule of thumb that says you should limit your withdrawals to 4 percent of your savings during your first year in retirement) was always a stretch. So how do you realize your retirement goals? You take a number of steps, including saving more, reducing your debt, seeking financial advice and possibly working longer.

Perhaps the silver lining of the economic turmoil is the realization that we need to evolve from a nation of accidental investors to stewards of our wealth, committed to saving for both short-term needs and long-term goals. "If you have a plan, take it out, dust it off and check your assumptions," says Lynne Ford, head of Wells Fargo Retail Retirement. "If you don't have a plan, now is the time to make one."

The "aha" moment for Kim Thompson came when she sat down for a one-on-one session with a 401(k) counselor. Thompson realized how little retirement income she could expect based on her current savings. "When the counselor pulled up my saving profile and showed me what I'd have to live on each month in retirement, I thought, There is no way."

Single and in her forties, Thompson likes to shop, travel and drive a nice car. But after that meeting, she says, "I had to search within myself and ask, Am I willing to sacrifice today for my retirement?" The answer was yes. When the counselor showed her how boosting her 401(k) contributions from 8 percent to 12 percent of salary would not make a huge difference in her take-home pay but could fatten her future retirement income by $20,000 a year, she upped her 401(k) contribution.

But Thompson didn't stop there. She signed up to increase her contributions automatically by 1 percent a year for the next three years until she reaches the optimum 15-percent-of-salary contribution rate recommended by many financial experts. And she worked with the counselor to select a more aggressive investment mix to help her achieve her nest-egg goal.

Plus, Thompson is now maximizing the assets in her closet instead of browsing the sales racks. And she has vowed to keep her current car when it's paid off rather than buy a new one. "Being single, I'm on my own," she says. "It's up to me, not anyone else, to get my retirement house in order."

(Mary Beth Franklin is a senior editor at Kiplinger's Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com. And for more on this and similar money topics, visit Kiplinger.com.)