Am I on track to retire at 67?

  @Money September 5, 2012: 5:41 AM ET
retirement investment

You need to make sure you're saving enough for retirement.

NEW YORK (Money Magazine)

I'm 46 years old and for the past 22 years I've put 6% of my paycheck into my 401(k). Will I have enough to live on when I retire at 67? -- Diana B., Va.

Getting an early start on saving and sticking with it is by far the best way to gain the inside track to a secure retirement.

So the simple fact that you've contributed to your 401(k) every year since the beginning of your career leaves you in a much better position than if you had procrastinated or not saved at all.

But without knowing how much you've actually accumulated in your 401(k), I can't really say whether you're on track to retire at 67.

Fortunately, you can gauge that pretty easily yourself. Just go to a good online retirement calculator and enter such information as your salary, the current balances of your 401(k) and any other retirement accounts, a breakdown of how your savings are invested and the percentage of pay you plan to set aside annually over the next 20 years.

Once you've plugged in those figures, the calculator will estimate the probability that your projected savings plus Social Security will be able to generate enough income to support you throughout retirement

Ideally, you'd find that chances are good that you'll be able to retire on schedule at something close to your pre-retirement standard of living if you continue your current regimen.

Related: Late start retirement plan - 19 years to go

But unless your employer has been supplementing your savings with generous employer matching funds over the years, I doubt that will be the case. Typically most people need to save between 10% and 15% of their annual income throughout their career to have a realistic shot at a secure and comfortable retirement. I suspect that a 6% annual savings rate will leave you a bit short of where you should be.

Still, even if you find that you're not as prepared for retirement at this point as you'd like, there's no reason to panic. You've still got several options for improving your prospects, and plenty of time to turn things around.

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The single most effective move you can make (which I'm sure will come as no surprise) is to boost the percentage of pay that you sock away each year.

To see how much more you need to save, just go to the calculator and run several scenarios assuming different savings rates. You'll quickly see how much you need to ratchet up your current savings effort to appreciably better your odds of calling it a career at 67.

Of course, you may find that the amount you can realistically put away is much lower than the target savings level the calculator suggests.

Related: 'Am I saving too much for retirement?'

In that case, you want to force yourself to sock away as much as you possibly can, and then supplement your savings effort with other strategies that may be able to improve your retirement prospects even more.

Working longer is at the top of the list, since staying on the job a few more years can simultaneously fatten your nest egg and increase the size of your Social Security check by 25% or more.

Indeed, a recent study by the Boston College Center for Retirement Research confirms just how effective postponing retirement can be.

Only about 55% of U.S. households are financially prepared to retire if they stop work at age 66, according to the center's research. By working to age 70, however, the percentage of households that can retire while maintaining their pre-retirement standard of living jumps to 86%.

There are plenty of other ways you can improve your retirement outlook, ranging from working part-time in retirement to squeezing income from your home with a reverse mortgage to relocating to an area with lower living costs.

You may also be able to improve your retirement lifestyle by being more flexible about how you pull income from your savings after you retire.

But those sorts of moves are for the future. For now, your first priority is to give yourself the type of retirement-readiness checkup I've recommended. Because only after you know where you stand today can you begin to develop a plan to improve your odds of retirement success over the next 20 years. To top of page

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