5 Reasons to Be Hopeful About Retirement

In a depressing year for retirement savers, here are a few reasons to be optimistic.

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Retirement may seem like a distant dream to many people. Americans have lost nearly $2 trillion in their retirement accounts this year. And a turbulent stock market coupled with falling home values is creating high anxiety among baby boomers approaching retirement age. But plans for a financially secure retirement don't need to be deferred indefinitely. Here are five reasons to be optimistic about your retirement prospects.

Social Security. Many pensions don't provide higher checks when the cost-of-living increases. So, your spending power is gradually eroded over time. But Social Security checks rise every year. The increase is tied to the consumer price index, a measure of the prices paid for goods and services. Benefit checks will increase 5.8 percent next year, the largest cost-of-living increase in more than 25 years. The estimated average check next year will be $1,153 monthly, up $63 from last year. Delaying signing up for Social Security until age 70 produces even higher payouts.

New 401(k) legislation. A bill that would allow seniors to avoid drawing down their savings from depleted retirement accounts sailed through Congress this month. Under current law, savers who have reached age 70½ are required to take annual withdrawals from their retirement plan or IRA. The distribution amount is calculated by dividing the prior December 31st balance of the retirement account by your life expectancy as determined by the Internal Revenue Service. Seniors who fail to withdraw this amount are hit with an excise tax penalty of 50 percent of the amount that should have been withdrawn in addition to regular income tax. This new legislation would temporarily suspend the excise tax for 2009 to help seniors avoid selling low and allow retirement accounts more time to recover before they are tapped.

Pension insurance. If your employer goes bankrupt, current workers and retirees will still be paid their pension. Pension benefits are insured by the federal government up to $54,000 annually for those who retire at age 65 in 2009, up from $51,750 this year. The limit is higher for those who retire later and lower for those who retire younger or elect survivor benefits. Some workers with high benefits may get lower payments, but most workers are fully insured. And it's not even your tax dollars that finance the Pension Benefit Guaranty Corp., the government agency that insures private-sector pension plans. PBGC funds come from insurance premiums paid by companies with pensions, assets of pension plans taken over, and investments. Plus, your plan is insured even if your employer fails to pay the premiums.

Employer 401(k) matches. The most common employer 401(k) match is 50 cents per dollar up to the first 6 percent of pay, according to a survey of 1,011 plans by the Profit Sharing/401k Council of America. If you make $60,000 a year and contribute the full 6 percent to your plan, you will get an extra $1,800 from your employer to pad your nest egg. And you won't have to pay taxes on that $5,400 or any returns it accrues until you retire, if it's in a traditional 401(k). Yes, some employers like Motorola, Kodak, and General Motors have recently suspended their 401(k) match. So, it's particularly important to collect the match while you can. And many companies bring the match back when their bottom line improves.

Medicare. Less than a third of large firms with 200 or more workers provide retiree health benefits, and only 4 percent of small businesses do, according to the Kaiser Family Foundation. But if you can find insurance elsewhere until age 65, then Medicare kicks in. Retirees who sign up are eligible for care in hospitals, physician services, diagnostic tests, preventive services, and a prescription drug benefit. Yes, there are many noteworthy Medicare gaps, including the lack of coverage for long-term-care services, dental care, eyeglasses, and hearing aids. And even with Medicare, retirees face significant out-of-pocket expenses. But without Medicare, many retirees would not be able to afford health insurance at all on the pricey open market, where insurance companies often exclude or only offer prohibitively expensive policies to people with pre-existing conditions.