Are you really ready for retirement?

How much have you saved for retirement? How much do you plan to save in the future? Will you be ready to retire at the age you've chosen? Will you enjoy worry-free retirement years?

These are questions you should ask yourself whether you're twenty years old or fifty. The only difference is that if you're twenty and you take retirement seriously, you can make saving for it a lot easier than the fifty year old who hasn't yet started.

In April of 2006, the Employee Benefit Research Institute (EBRI) released their latest in-depth survey outlining the costs of retirement and the opinions of Americans about their readiness. The findings have caused some concern about Americans' tendencies toward overconfidence.

Many of those surveyed admitted they had saved less than $50,000 for retirement. However, because 88 percent of those are workers less than 35 years old, they've still got time to build their nest eggs. The bad news is that 52 percent of Americans aged 55 and older also admit they haven't managed to save more than $50,000.

These numbers are sobering for many reasons.

Companies are scaling back, freezing, terminating or simply no longer offering pension plans and retirement benefits. When it comes to health care costs, more and more companies are shying away from paying costs for their retirees. Plans are being dropped altogether or retirees are being forced to pay substantially more for their continuing coverage.

According to EBRI research, it is estimated that if you're 55 and you live to the age of 90, you'll need to have $210,000 to pay for insurance which will supplement Medicare and out-of-pocket medical costs.

Although those who are currently retired estimate their living expenses to be about 70% of what they brought home while working, too many of us who are still in the workforce believe we'll be fine on 50% or less of what we make while working. This is probably not a realistic view.

Will our Social Security benefits still be available when we want to retire? Will they last through the rest of our lives? Many people are wondering, and no one seems quite sure. The Social Security trustees have publicly estimated that the Social Security fund will be empty by 2034.

What are you doing for retirement?

To be safe and comfortable and to have the money available to take care of our health needs, we should all try to meet a goal of replacing 85 percent of what we've made while working.

The younger we are when we begin saving, of course, the easier this will be. A person in his or her early twenties saving 15 percent of each paycheck should be able to happily retire at age 60 with enough savings.

The mighty 401K

Does your company match your 401K contributions? This can be an excellent way to save for retirement. Some companies are now automatically enrolling new employees in their 401K plans, and the EBRI study shows that a hefty percentage of workers approve of automatically increasing 401K payroll contributions when raises come along. If you work for a company that matches your contribution, it may be wise to contribute the maximum allowed for the entire time you work there.

If your company doesn't offer a 401K, you can still save. Check to see if they have set up Simple IRAs or SEP IRAs instead. If there's nothing offered, establish your own IRA, or Individual Retirement Account, and contribute to it religiously. IRAs can be good tax shelters.

IRA facts

There are several different types of IRAs. Traditional and Roth IRAs are available for any individual who would like to set one up. Of course, there are many rules and conditions that go along with IRAs. For contributions to be tax deductible in your traditional IRA, you must meet certain income conditions. The way you file your taxes also makes a difference, as does whether or not you're covered at work by your employer's retirement plan. Roth IRAs are a bit easier to understand: they simply aren't tax-deductible. They money you draw out from your Roth will be tax-free because you've already paid your taxes on it.

When you begin to withdraw from your traditional IRA, you will be taxed, but if you wait until you retire, you'll be taxed at a substantially lower rate, assuming your income is now much less than it was when you were working. Depending again upon the conditions surrounding your contributions, you may be able to use your IRA contribution as a tax deduction. The money you contribute comes off your total income during your working years and you pay fewer taxes. The more you contribute, the better, but of course there are limits. You might even get yourself into a lower tax bracket altogether.

What IRA is right for you?

If you're trying to figure out what kind of IRA you should choose, think about what you want to accomplish with it. The income tax benefits are probably the biggest thing to consider. Do you want the benefit to show up when you contribute to the IRA? On the other hand, if you want to be able to withdraw the money from your IRA in later years tax free, you might prefer the Roth IRA. If you can't decide, choose both! You don't have to have one or the other.

Other options

If you've chosen a traditional IRA, taxes will be due when the money starts being withdrawn. If your IRA passes to your heirs, they will receive the tax burden. While this is one reason to consider a Roth IRA, there are other options available as well, such as life insurance policies, of which there are many different kinds. Some people might find contributing to a life insurance policy, if they don't think they'll need the monthly income, a better way to save. Variable Universal Life offers a death benefit to a beneficiary like most life insurance policies but also has a cash value that you can borrow against.

An estate planner or attorney can offer advice on such matters.

The trick is to begin

Whether you're young and new to the job scene or older and find you're thinking more frequently about retirement, start saving now. Make your retirement an important part of your financial planning. Don't forget to figure out your future goals and revise them as necessary. Do you want to travel? What is your health situation? Make yourself a priority so your retirement years can be healthy, happy and as stress-free as possible.