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How to Know Whether You'll Retire

Are you the type of person who likes to go along with the crowd? Or would you consider yourself a contrarian, even a rebel?

If you like to travel with the herd, then you don't need this article. In fact, you don't have to do anything -- because that's what the majority of people do when it comes to retirement planning.

But if you'd like to set yourself apart from the have-to-work-forever masses, then do something right now that most people don't do: Calculate how much you need to save to retire.

According to the Retirement Confidence Survey conducted by the Employee Benefits Research Institute, only 42% of workers have calculated whether they'll be able to one day kiss the boss good-bye -- and even some of those people just guessed. But hear me now, loud and clear: You won't have the retirement you want unless you crunch your numbers, several times over.

The Internet to the rescue!
The Whirled Wild Web is replete with tools that will help you evaluate your retirement plan. As you fiddle with all these online abacuses, keep the following tips in mind:

  • Run several analyses. Each calculator will give you a different result. So run your plan through three to five tools to get many opinions about your retirement's prognosis.

  • Keep your assumptions conservative. Don't assume stocks will return their historical average of more than 10% annually; assume something more like 7% or 8%. This will build a margin of error into your plan. If the market underperforms, then you'll still probably have saved enough. If the market outperforms, you'll have even more money in retirement -- bonus!

  • Yes, you'll receive Social Security. Indeed, the program faces serious financial problems. But remember that it's essentially a pass-through program, in that today's taxes pay for today's benefits. And as long as there are workers paying taxes, there will be Social Security. However, if you're 55 or younger, it does make sense to assume that you'll get less than what is currently promised. Run your plan through a few scenarios, assuming a 25%, 50%, and 75% cut in Social Security benefits.

In our Rule Your Retirement service, we offer a supercharged financial-planning tool that not only analyzes your retirement plan but also suggests an asset allocation and makes sure you have your other financial ducks in a row. Give it a whirly by taking a 30-day free trial.

You could also use Google or Yahoo! to find a handful of retirement calculators and run your numbers. And financial software such as Intuit's Quicken and Microsoft's Money feature retirement calculators.

But whatever you do, do something. You don't want to follow the "retirement-will-just-magically happen" crowd over a cliff.

Robert Brokamp was the King of Bavaria from 1863 to 1886 -- until his alarm clock woke him up. The Motley Fool is forethinkers writing for forethinkers.

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