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Do You Even Stand a Chance at Retiring?

You try to sock away money for retirement. You haven't bought a McMansion. Your car is five years old. But you've just witnessed the stock market drop 45%. You've seen friends lamenting their endangered retirements. Maybe you're even starting to panic a little yourself. Do you stand a chance of a decent retirement?

Maybe not.

Let's outline some reasons why you might be in trouble -- then follow up with ways to salvage your situation.

Do you have a plan?
According to the 2008 Retirement Confidence Survey (RCS), only 47% of American workers have taken the time to calculate how much they'll need in retirement. Bad move.

According to the Fool's Rule Your Retirement newsletter service, in order to make your nest egg last, you should plan to withdraw about 4% of it per year in retirement. If you begin retirement pleased with your $500,000 nest egg, will you be able to live well by taking out just $20,000 in your first year? Will that $1,667 per month be enough?

If you don't see yourself ending up with enough, start devising strategies to better your future. (Here's a good place to begin.)

Does your asset allocation make sense?
If you have all your money in bonds because you're near retirement, think twice. Bonds certainly have their place, and retirees or near-retirees should have hefty exposure to them. But even if you're 65 and in retirement, you'll very possibly live another 25 to 30 years, and you won't be tapping much of your nest egg for 10 to 20 years.

Wouldn't some or all of that money grow faster for you in stocks? Academic research has shown that of all the investment classes, stocks sport the most promising returns over multiple decades. For retirement, dividend-paying stocks make particularly good sense -- you can either reinvest your dividends and purchase more shares, or take the quarterly payout to help pay your bills.

Below, I've put together a few dividend-friendly candidates. They're not formal recommendations per se, but they're good ideas for further research:

Company

Current Dividend Yield

5-Year Dividend Growth

Coca-Cola (NYSE: KO  )

4.0%

12%

BP (NYSE: BP  )

8.8%

17%

ConocoPhillips (NYSE: COP  )

5.0%

18%

United Parcel Service (NYSE: UPS  )

4.4%

14%

McDonald's (NYSE: MCD  )

3.8%

32%

PepsiCo (NYSE: PEP  )

3.5%

21%

Texas Instruments (NYSE: TXN  )

2.8%

37%

Data: Capital IQ, a division of Standard & Poor's, and MSN Money.

Do you respect your 401(k)?
According to Hewitt Associates, approximately 45% of workers cash out their retirement accounts when they change jobs, instead of leaving the money to grow.

You might think that a mere $40,000 balance won't change your life. But if you leave that $40,000 right where it is, and it grows at the market's historical average 10% rate of return each year, it will top $430,000 in 25 years. Under the 4% withdrawal rate outlined above, that $430,000 could deliver more than $17,000 per year in retirement.

Even if they're not cashing out, too many people are borrowing from their 401(k) accounts. Unless you're in desperate need of liquidity, borrowing against your retirement is an excellent way to sabotage your future.

Do you trust Social Security?
Take a close look at the annual accounting that the Social Security Administration mails you. I just got mine this week; if I retire on schedule, I can look forward to less than $30,000 per year. That's assuming the program can even deliver tomorrow what it promises today. My colleague Dan Caplinger has his doubts.

There's still time to change
Each problem above has a solution. Make a retirement plan. Ensure your money's allocated wisely. Stop depending on Social Security. Keep that 401(k) money invested and working for you.

If that all sounds easier said than done, we'd love to help you set yourself up for a much more comfortable retirement. Check out Robert Brokamp's Rule Your Retirement newsletter service free for 30 days, with no obligation. A free trial gives you access to all past issues, including recommendations of promising stocks, mutual funds, and fixed-income investments.

Longtime Fool contributor Selena Maranjian owns shares of McDonald's and PepsiCo. United Parcel Service and PepsiCo are Motley Fool Income Investor picks. Coca-Cola is a Motley Fool Inside Value recommendation. The Motley Fool is Fools writing for Fools.


Read/Post Comments (9) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 02, 2009, at 3:13 PM, Crunch110 wrote:

    OK I usually never comment here, but I cannot believe how naive Selena is here.

    You write:

    "But if you leave that $40,000 right where it is, and it grows at the market's historical average 10% rate"

    OK...what FRICKIN PLANET are you ON?

    DO YOU READ THE PAPER? TV? OVER WHAT TIME period?...hmmmm? 1945? Where on earth are you basing your calculations?

    Hewitt says: approximately 45% of workers cash out their retirement accounts when they change jobs, instead of leaving the money to grow.

    Yes 45% do not leave their money to "grow" (or in the current case flushed down the toilet) with Hewitt. Most people, like myself, (and I had Hewitt as a 401K admin) "Transfer" the money out to an IRA when they leave their job. So you have complete controll rather than Hewitts limited selection of Funds.

    As far as your dividend-friendly candidates...yeah; they look pretty good NOW, but that's as long as they don't cancel their dividends. And talk to Buffett about Conoco-phillips.

    Hey Selena, we are are all screwed as far as retirement, and we may go into a 10 year world wide depression (God I hope not) so please don't insult us with the same BS about stock market returns.

    Good day

  • Report this Comment On March 02, 2009, at 9:54 PM, Bucks2407 wrote:

    Exactly Crunch 110. I keep looking for slivers of reality on this site. People wake up. This thing is never going back to 1997 or for that matter 2004. Hope to hang onto your job, continue to invest prudently, but NEVER calculate your retirement possibilities based on "projections" you read from a financial planner or author on this site for that matter. I just figure by the time I hit 70, (I'm 40) that the ability to work later in life will be dramatically improved due to technology. Hopefully I'll only need about 10 years of savings on which to live.

    The whole retirement dream industry has been a complete scam. We all could get hit by a bus tomorrow so why worry about it. Live wisely, but live for Today!

  • Report this Comment On March 02, 2009, at 10:36 PM, OneLegged wrote:

    I will retire on the morning I fail to wake up.

  • Report this Comment On March 02, 2009, at 10:37 PM, LRtex wrote:

    Ditto Crunch110.

    I counld not believe what I was reading. The article title Does NOT fit the content of the article.

    While reading it I thought I was in La La land.

  • Report this Comment On March 03, 2009, at 9:11 AM, brwn8484 wrote:

    Obama and Geithner and all his buddies cannot fix this mess. Wake up America. Join the Tea Party and lets throw all these knuckle heads a party they wont forget!

    Any idiot knows that history repeats itself, and these Bozo's are following the stupidity that we followed back during the fist depression. Well, were in the second depression and no amount of wanton spending will solve this problem. There are many wise people that have plans to solve this crisis but just like in real life, we wont listen until we have reached bottom or are too far gone to save the patient.

    Maybe we need some more spending!!!!!!!!!!!!!

    AHHHHHHHHHHHHHHHHHHHHHHh!!!!!!!!!!!!!

    If I hear another idiot claiming that useless and stupid spending plans will save us with a fictitious 2,3,4,5 million jobs I will start buying more guns to protect myself from the coming social unrest. Wake up America. Think with the brains God gave you and send this group of leaders back where they came from.

  • Report this Comment On March 03, 2009, at 9:44 AM, wolfhounds wrote:

    I've had my fair share of negative comments the past six months about articles that mean well but don't seem to take current reality into account. I should also say that I've closed my MDP and HG subscriptions because I felt TMF wasn't looking out for it's subscribers by issuing timely sells.

    Having said all that, I'd like to comment about the position I and many my age (62) find themselves in. My generation has done very well for itself these last 35-40 years. I was able to retire early, live comfortably on pensions alone, and looked forward to downsizing from my 2800 sq. ft. home into a more suitable community. For those of us who don't have mortgage problems, income problems, whose depleted portfolios aren't an immediate problem, we still have our lives on hold because for an undetermined time because of the financial meltdown which has frozen home selling.

    Don't mistake this for bitching and moaning. As I said, I consider myself comfortably well off. My point is, that I have invested for years in the type of stocks this article speaks of (as well as growth stocks) and still find myself unsure of how the future looks like.

    So I ask the writer to explain how the rest of America (TMF subcribers included) will move forward and invest for retirement when uncertainty of this magnitude requires thinking twice about where your money belongs.

  • Report this Comment On March 03, 2009, at 11:06 AM, OleDrippy wrote:

    If i hear 10% average stock market returns I'm just going to puke.... BUT, like an idiot, I continue to buy into a stock market that is rigged, continue to work at a job that I hate, and continue to live in a country that is not as it should be.

  • Report this Comment On March 03, 2009, at 12:33 PM, cgaakks wrote:

    I had 30,000 dollars years ago fully invested and it did not turn out to be htis much money. Although I did increase its value until this year when it took a second hit. The first was in 2001. I think one can increase the amount of money through the stock market but not as much as analysts and brokers publicize. A more realistic forecast should be given. I was told I would have a million by now. Ha

  • Report this Comment On March 03, 2009, at 2:08 PM, brwn8484 wrote:

    If you want to get a realistic review of the market, look at our leaders in Congress and on Wall Street. If they are treating you the way you would be expect to be treated then expect 7-8% return.

    If they are crooked and immoral then expect to lose most of what you have. Our country and our financial system is based on a fair, moral and upstanding system of leaders and laws. When the leadership (and followers) become immoral and criminal, then the country (and financial system) will fail.

    No amount of spending, cajoling, or new party candidates will fix this problem. Only when we hold those people who are criminally and morally at fault will we see our financial and political system restored.

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Selena Maranjian
TMFSelena

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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