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Do you know how much to save for retirement?

By Michelle Singletary
Sunday, March 21, 2010; G01

When my eyesight began to give me trouble, I tried to ignore it.

"Nope, not getting glasses," I told myself even after the headaches had started, a result of my straining to read.

Finally, I got my eyes checked and, as a result, I bought reading glasses. Now I can see clearly.

What I went through with my eyes is a bit like what many workers do when it comes to retirement planning: They try to ignore the inevitable.

The Employee Benefit Research Institute (EBRI) released its 2010 Retirement Confidence Survey and, among other things, the organization found that many workers continue to be unaware of how much they need to save for retirement. Less than half (46 percent) reported that they had tried to calculate how much money they will need to live comfortably in retirement.

"The sooner people realize where they are, the easier it is to correct it going forward," said Jack VanDerhei, EBRI research director and co-author of the survey. "For example, if you're age 40 and find out you have a retirement funding gap of thousands of dollars, obviously it requires a smaller savings per year than if you wait until you're 45 or 50."

Given the current economy, it's not surprising that fewer workers said they have been saving for retirement (69 percent, down from 75 percent in 2009). An increased percentage of respondents said they have nearly no savings or investments: 27 percent said they had less than $1,000 stored away. More than half (54 percent) noted that the total value of their household's savings and investments, not including the value of their primary home or any defined benefit plans, is less than $25,000.

So how much should you be saving for retirement?

Instead of doing a methodical calculation, many people just guess.

In the EBRI survey, 29 percent of workers said they needed to save less than $250,000, while 17 percent said their goal was between $250,000 and $499,999. Twenty-four percent of respondents think they should save $500,000 to $999,999. Eight percent think they need to save between $1 million and $1.49 million, and 9 percent said they needed $1.5 million or more. Thirteen percent didn't even want to take a guess.

Here's something to ponder: Workers who have done a retirement-needs calculation are likelier to feel confident that they'll have enough saved. Finding out what they need also has the tendency to change people's retirement planning behavior, EBRI found.

In fact, workers surveyed for the 2008 report who had done a retirement calculation said they made some changes. Most began saving or investing more. Other actions included:

-- Revising their investment mix.

-- Reducing debt or spending.

-- Enrolling in a retirement savings plan at work.

-- Deciding to work longer.

-- Researching other ways to save for retirement.

If you want to stop guessing at what you need, try various online retirement calculators. The one I've found particularly helpful and not so hard to use is at http://www.choosetosave.org. Search for the "Ballpark Estimate" worksheet. It's a good exercise that makes you consider all sources of income for your retirement. When you've answered all the questions and your information is calculated, you'll find out the percentage of your total salary that you'll need to save to achieve your desired income replacement rate in retirement. It also gives you the dollar amount you will need for the current year. There's no big whopping six- or seven-figure number to scare the heck out of you.

"If people don't have any idea of what their goal is, it might be a shock to the system," VanDerhei said. "But it's better to get that shock when you can do something about it than later when it's more difficult."

In the 20 years EBRI has been doing the retirement confidence survey, the organization has found little evidence to support the theory that employees who do a retirement-savings calculation are disheartened by the results.

I understand that there might be some fear and even frustration in retirement calculation at first. The estimated amount or even percentage of your pay you need to save every year can be daunting. People don't want to see how much they'll need because it seems an impossible goal to reach.

But not knowing doesn't make the need go away. Like my stubbornness with getting glasses, it's better to have clear vision than have some blurry-eyed sense of how much you think you'll need.

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

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