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Retire on Your Terms

In the past, many workers could count on their employers and Social Security to provide for them in retirement. Now, however, employers are increasingly shifting that burden back to their employees. Therefore, you have to carry your own weight to ensure that you'll retire comfortably.

A study that the Employee Benefit Research Institute recently released confirms this ongoing trend away from employer-managed pension plans. According to EBRI data, among those who are 65 or older, only 45% of male retirees and 28% of female retirees receive employer-based pension or annuity payments. Low-income workers and those without advanced education and training fare even worse.

What's more, even those who receive pensions don't draw a huge income from them. Half of all male recipients receive $12,100 or less annually from pensions, and females get even less -- the median amount is less than $7,100 per year. The numbers are even lower if you exclude government and other public-sector workers, who tend to have access to relatively strong pension plans. And they clearly show that you won't be able to cover your living expenses if you don't prepare by building up savings throughout your career.

What you have to do
The key is making an investment plan. But one of the biggest challenges is figuring out how much to save. Not knowing how much you'll need to save is one of the nine retirement killers that threaten your financial security in your golden years.

In turn, how much you need to save depends on how aggressive you're willing to be with your money. With a relatively conservative allocation of 50% large-cap stocks and 50% bonds, you might expect to earn 7%-8% returns. If you're more aggressive, however, and earn a 10% return in an all-stock portfolio, you'll have a lot more when you retire -- 37% more after 20 years, and 68% more after 30 years.

By optimizing your asset allocation to include investments other than large-cap U.S. stocks, you might be able to do even better with less risk. Shares of small companies move in different ways from large-cap stocks, helping to diversify your portfolio. Companies such as Daktronics (Nasdaq: DAKT  ) and American Eagle Outfitters (NYSE: AEO  ) have been among the top-performing small-cap stocks in the past decade. Meanwhile, international stocks like British mobile operator Vodafone (NYSE: VOD  ) and Brazilian oil giant Petrobras (NYSE: PBR  ) have helped diversified investors achieve even stronger gains than the U.S. market has enjoyed, despite a big move up in share prices around the world since 2002. And although real-estate investment trusts, such as Vornado Realty (NYSE: VNO  ) and Kimco Realty (NYSE: KIM  ) , had a tough 2007, their high returns during the 2000-2002 bear market helped smooth out losses for investors.

Watching the bottom line
Of course, there are other things you can do to ensure a successful retirement. How much you'll want to spend in retirement is another key factor in figuring out how much to save. If you have high expectations for your golden years, you'll want to save more now to make those dreams come true. Conversely, if you enjoy inexpensive pursuits close to home, you won't necessarily need to save as much now.

The important thing is that the way current trends are moving, you'll be the one to dictate the terms of your retirement. Through the decisions you make about saving and investing your retirement nest egg, you have the power to succeed in preparing for a safe and financially secure retirement.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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