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REFILE-Stern Advice - That retirement crisis? Not so bad, after all

Linda Stern
Wednesday, 4 Dec 2013 | 2:21 PM ET

NEW YORK, Dec 4 (Reuters) - Don't look now, but some of the same folks who have been spreading fear about the woeful lack of retirement readiness among American workers have something new to say on the subject: a financial industry study that asserts that we're doing a lot better than we think.

"Americans' retirement well-being has improved over time, as successive generations of retirees have been better off than previous generations," says the study, "Our Strong Retirement System: An American Success Story," being released on Wednesday.

Three organizations, the American Council of Life Insurers, the American Benefits Council and the Investment Company Institute, which represents the mutual fund industry, contributed to the research and published the study.

They have a really good point: In mid-2013, the average U.S. household held $167,800 in retirement assets, including traditional pensions, in inflation-adjusted dollars. Compare that with the inflation-adjusted $56,200 in 1985 or $27,300 in 1975. Near-retirees (those between 60 and 64) have nearly $360,000 in their defined contribution accounts and IRAs, on average, the report said.

The United States now has more than $20 trillion in retirement savings and investments, up from $11.7 trillion in 2000, according to the ICI.

"When we look at data and near-retirement households, they have accumulated significant resources. We see that they are able to retain their standard of living," Sarah Holden, senior director of retirement and investor research at ICI, told Reuters in an interview.

The good news represents a change in tone for the financial services industry, which continues to use frightening messages to push workers to bump up their 401(k) and individual retirement account savings.

For example, a separate Fidelity Investments study, also to be released on Wednesday, is headlined: "More than half of Americans (are) at risk of not covering essential expenses in retirement."

That follows a report on Tuesday from the National Center for Retirement Research at Boston College that said 50 percent of households will not be able to maintain their standard of living in retirement.

"It would be nice if we could get a balance," said Holden, adding that it would be good to convey the message that retirement success "doesn't just happen, you do have to set aside money for retirement, without getting to 'there's a big problem."'

Why the new upbeat message?

The more Washington talks about budgetary pressures, the more companies that provide IRAs and 401(k)s worry about legislators trimming the tax breaks they bestow on those retirement savings vehicles. Thus the industry is committed to demonstrating that the current retirement system works.

The latest upbeat report outlines many positives about that system. For example, it asserts that defined contribution plans such as 401(k)s are popular with workers, are a good fit for today's mobile work force and enjoy broad participation - with almost 80 percent of full-time workers with access to a plan participating.

Here is some more encouraging news about retirement and how to make sure your personal retirement picture is pretty.

- Those close to retirement are alright. "The baby boomers are not in bad shape," says John F. Sweeney, executive vice president for retirement and investing strategies at Fidelity. The generation, on average, will be able to cover essential household costs in retirement, he said.

Fidelity's methodology is quite conservative. It dived deep into the actual pre-retirement spending of 2,265 working households and then projected that retirees would spend the same amount forever, with annual increases for inflation. In actuality, most retirees hold their spending flat or even trim expenses at some point during retirement.

- Younger workers have time to catch up. Most of the generic retirement studies that show average Americans NOT on track to meet retirement expenses are averaging 25-year-olds along with 60-year-olds. Young households are not, on average, on track to meet their retirement goals. But they have decades to work, plan and save.

- You may be able to spend more than you thought you could in retirement. The rule of thumb that most retirement calculators and advisers use is this: You can with withdraw 4 percent of your nest egg in the first year, and then increase that by 3 percent a year. But new research from T. Rowe Price says that the 4 percent figure "is a relatively conservative initial withdrawal rate."

Retirees who are willing to forego that 3 percent increase in some years - or who are willing to recalculate their withdrawals annually, based on the size of their nest egg - may be able to withdraw as much as 7.5 percent in some situations and still not run out of money in retirement.

- Workers have a big toolbox. If you're not on track to meet your retirement goals, there's a lot you can do to get there. You can make up lost ground by working a little bit longer, putting more money in stocks, saving more and being strategic about how and when you take your Social Security benefits, advise experts at Fidelity, T.Rowe Price and elsewhere.

Once you're retired, you can look into tax-saving strategies and cut your housing costs. Finally, you can trim expenses as you age, which many retirees do.

Says Sweeney, managing those retirement expenses "is the biggest predictor of success."