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You're likely to live longer, so get a fix on money needs


HOW MUCH MONEY are you going to need for your retirement? If you're in the middle class and up, you hear some astonishing numbers. Some professional planners say you can't do it on less than $1 million or even $2 million.

A reporter I know visited nine professionals, asking "How much more do I have to save for my retirement?" She's single, in her mid-30s, with $50,000 from a buyout when she left a previous job. On her current job, she has a 401(k) plan plus a shot at a traditional pension.Two advisers told her she didn't have to save anything more. One said she was going to need $3 million. The others fell somewhere in between. She ended her odyssey more confused than ever.

For a good fix on where you are and what you need, try the free retirement planner offered by the mutual fund group T. Rowe Price (call 800-638-5660). If you'd like to purchase software on retirement planning, consider those from T. Rowe Price (800-541-1472), Vanguard (800-950-1971) and Fidelity (800-457-1768) or the Quicken Financial Planner (call its maker, Intuit, at 800-446-8848. Disclosure: I helped develop the Quicken disk).

Baby boomers are saving more money than the previous generation because they have higher real incomes than their parents did. But they may face higher expenses in retirement than their parents did. To take one obvious example, you will almost certainly have to pay more of your own medical expenses -- both out-of-pocket costs and higher health-insurance premiums. Social Security benefits will also shrink in some way, especially for the well-to-do.(Social Security is solvent for at least 30 years, and could run in perpetuity with minor tax increases and modest rises in the retirement age.)

The risk you most underestimate is your own longevity. Social Security projects an average life expectancy of about 81 by 2070, compared with 76 today. Based on these numbers, you might assume that you won't live past 85 or so.

But Ronald Lee, professor of demography at the University of California at Berkeley, says average life expectancy will reach 87 by 2070. Hundreds of thousands of boomers are going to live well into their 90s and even past 100.

What's the answer? "Save more and keep working," says Olivia Mitchell, director of the Pension Research Council at the Wharton School of the University of Pennsylvania.

The good news is that boomers, on average, should have little trouble matching the standard of living of their parents' generation, says James Smith, senior economist at Rand, a think tank in Santa Monica, Calif.

Middle-age workers may have a modest retirement in hand, especially if they have an employer-paid pension. But workers expect something better than that, and they're not yet saving enough to achieve it.

Policy-makers can help them by restructuring private pensions and Social Security, to discourage retirements earlier than 65. Any new tax breaks should focus on getting workers to start or expand their personal savings plans. Even without a tax incentive, people generally save more in their 50s -- an age when they start to hear the shuffling footsteps of time.

Pub Date: 12/30/96

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