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Saving for Retirement

Ready to Retire? Get Real

Many retirees spend more than they expected.

If you're in the homestretch to retirement and want a financial reality check, perhaps you should consider the sobering findings in recently released Fidelity Research Institute surveys of retirees and preretirees. Two major lessons: Don't count on working in retirement to make ends meet, and be prepared to spend at least as much in retirement as you're spending now.

Although 68% of preretirees ages 55 and older reported that they plan to work at least part-time in retirement, more than half of current retirees said they left the workforce earlier than they had expected, by one to five years. Of these, 40% cited illness or disability as the reason.

More than 80% of retirees said that before retiring they had expected that their monthly expenses would be the same or lower once they retired. However, 39% reported that their costs actually increased. "We speculate that health-related costs are the key driver," says Guy Patton, the institute's executive director.

If the retirees' actual spending practices are any guide, the preretirees, whose average age was 58, aren't saving close to enough. The typical preretiree household is on track, based on its current savings rate of 4.1% of income, to replace 61% of its income in retirement. "These retirees will be taking a 40% pay cut in retirement unless they have large fixed expenses that will disappear," Patton says.

The 61% replacement-of-income rate is far short of the 85% rate that many analysts say that retirees need. About 15% are on track to replace at least 85% of their current income while 34% are on track to replace at least 70%. According to Fidelity, the typical preretiree household would need to increase its saving rate to 18% of income to live on 85% of current income during retirement.

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Patton says the preretirees "still have a little bit of time" to catch up, by boosting contributions to their 401(k)s and IRAs.

The results are part of two online surveys. The institute surveyed 2,000 Americans ages 25 and older who are working full-time; of these, 302 were preretirees ages 55 and older. Fidelity also interviewed 793 retirees ages 55 and older.