Social Security fears intensify push to retirement finish line

By Meg Richards Associated Press

For Robert Smith, the "Aha!" moment came about a month ago as he was watching TV. A caller to the Suze Orman show laid bare her financial life, and Smith, a 31-year-old father of four with few investments and no long-term plan, saw himself.

"She was my same age, I guess that's what got my attention," said Smith, who has a marketing business in Rockford, Ill. "She (Orman) said the first thing this lady needed to do was sit down with a fee-based financial planner. So that's what I did."

Smith and his wife had an emergency fund, but the one-time hourly worker turned entrepreneur knew little about investing. Now he hopes careful long-term planning will help him retire a multimillionaire.

"I want to be well past the point where I need to rely on something like Social Security," Smith said. "I realize the road to wealth is one where you just have to keep chugging along. Time is on my side."

Studies that show only modest improvement in our retirement saving and investing habits suggest Smith's determination is unusual, but there are some signs we're making progress. With Social Security reform, long-term health care coverage and troubled employee pension plans making headlines, it seems epiphanies like his are happening more often.

"They're realizing they have to do something," said Bill Driscoll, a financial planner in Plymouth, Mass. "All the talk about Social Security going bankrupt and private accounts has everybody nervous."

Driscoll doubts the government will allow Social Security to disappear entirely, but he's advising his clients to do all they can to avoid having to rely on it. Baby boomers are often struggling to save more, while younger clients are convinced they'll have to fend for themselves in their old age.

For baby boomers between 45 and 55, saving enough to cover a potential shortfall is a challenge. If the system pays substantially less than promised, they may have no way to replace the funds other than working longer.

"No matter how much money you think you have coming in, you can't really count on anything, and inflation is still a big part of the picture," said Chris Neri, 54, a real estate agent who opened an IRA 30 years ago, but still plans to work as long as he can. "Peace of mind may be a bit elusive, and early retirement may be a thing of the past."

A recent survey by the Principal Financial Group, a top administrator of employer-sponsored retirement plans, asked workers how they would manage in retirement without Social Security. Sixty-eight percent said they would either remain in the work force longer or ease into retirement by working part-time. The vast majority of those surveyed, 89 percent, are aware of legislative proposals to reform Social Security with private retirement accounts, but 49 percent said they wouldn't be comfortable managing their own investment.

Despite how well publicized the issues are, most people are only setting aside between 6 and 7 percent of their income in tax-deferred retirement accounts, said Dan Houston, senior vice president of retirement and investor services at Principal. Planners say a savings rate of 10 to 15 percent over several decades is necessary for workers to maintain their quality of life in retirement.

"We are saving roughly half of what we need and we're spending twice as much as we can afford as retail consumers," he said. "If we don't shift the dollars being used for immediate gratification to long-term savings, we are not going to be in a position to make a lot of choices about the quality of our lives at age 65 and beyond."

There is some evidence that younger workers are getting energized, Houston said. But those closest to retirement, 55 and older, often fail to take basic steps, such as taking advantage of catch-up contributions the government allows to tax-deferred retirement accounts.

Those who think they can catch up later by working longer may be in for a rude surprise, he said. Employment for older workers is far from guaranteed. Workers usually retire sooner, not later, than they thought, either because of job loss or medical issues.

"You should plan to stop working around age 57. And if you decide you want to work a day past 57, afford yourself a luxury of making it a decision," he said. "Do it because you choose to, not because you have to."