If You Don't Know Where You Are Going, You'll Never Get There

March 15, 2010

| MoneyRates.com Senior Financial Analyst, CFA

There was no shortage of discouraging news in the latest survey by the Employee Benefit Research Institute (EBRI) regarding the retirement preparedness of Americans. Still, perhaps what stood out most was this statistic: less than half of U.S. workers have calculated how much money they will need for retirement.

That fact may strike you as shocking without further elaboration, but adding a little context makes it even more disturbing. Beginning in the 1980s, and then accelerating throughout the 1990s, the retirement system in the United States went through a radical transformation. Defined benefit pension plans were largely phased out in the private sector, and replaced with defined contribution plans, such as 401(k) plans.

What does that mean? Simply that employers were no longer responsible for funding the retirement benefits of their workers. Via 401(k) plans, they would provide a retirement vehicle for their employees, and maybe chip in a matching contribution. Beyond that though, their responsibility is finished. Making sure that enough money was saved over time, and that it was invested responsibly, fell to the American worker.

The EBRI study suggests that the American worker, on average, has not been up to that responsibility. Assuming that figuring out how much money you'll need in retirement is the first step toward actually starting to save that amount of money, it appears that most Americans literally haven't done the first thing to prepare for retirement.

MoneyRates.com regularly encourages people to raise their savings rates. As much as the environment of low bank rates might be discouraging, it also makes the need to save even more urgent. In addition, those savings rates should be building toward a goal -- after all, if you don't know how much money you'll need in retirement, your chances of accumulating the right amount are probably pretty slim.

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