How to Size Up Your Retirement Nest Egg

True values of pensions and Social Security may bring you closer to retirement adequacy than you think.

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It is well-known that Americans, on average, have not set aside nearly enough money to fund their retirement needs. With millions of aging baby boomers reaching retirement age every year, fears of an impending retirement crisis have prompted calls for new and revised government retirement supports, changes to healthcare programs, and extensive proposals to strengthen employee retirement programs.

[See 10 Steps to Fine-Tune Your Retirement Plan.]

Averages can be very misleading, however. Economists James M. Poterba, Steven F. Venti, and David A. Wise recently took a detailed look at the financial resources of Americans at all levels of income and wealth. Their work is based on 2008 income and wealth information. Home prices have dropped since then, but it's not likely that their findings would change materially using more recent data. What they found were wildly different retirement prospects among different income groups, leading to a conclusion that any "one size fits all" remedy for retirement readiness would not be effective.

In addition, their detailed financial portraits of the actual finances of people in the early stages of retirement (ages 65 to 69) documented some other realities that many retirees already know:

• Social Security is essential to nearly all retirees; people at nearly all income levels rely on it for significant portions of their retirement spending needs.

• People lucky enough to have private pensions are winning the equivalent of the retirement lottery. Virtually no early retirees in the lower half of the household wealth rankings have defined benefit pensions.

• Most people have more wealth than they think. Researchers determined the level of financial assets needed to generate lifetime Social Security and pension payments. The values for many people are well in excess of half a million dollars.

[See When to Convert Your Savings Into an Annuity.]

• Home equity remains an essential source of retirement support, and a piggy bank that is often used to fund unanticipated healthcare expenses.

• Higher-income early retirees have enough money to buy meaningful streams of guaranteed annuity income, but are reluctant to do so because they don't understand or trust annuities.

• Retirement adequacy and resources differ a lot between single and married households.

To understand how your financial situation compares with other Americans, here are details on early-retiree wealth for single and married households, broken into percentile groupings. The wealth figures for defined benefit pensions and Social Security payments represent the level of assets needed to generate the income payments received for these benefits.

Household WealthPercentileFinancial HoldingsRetirement AccountsHousing EquityDef. Bene. PensionSocial SecurityNet WorthAll Households, Aged 65-69, in 2008 ($000)100.00.00.00.00.0197.0200.30.05.00.0154.3297.3302.00.042.00.0214.5413.6406.00.080.00.0267.9564.05015.05.0120.00.0315.3731.16032.028.8162.025.3379.0898.47070.075.0229.5116.8463.31,146.480145.0142.0349.2238.5542.91,483.490358.0347.0585.0468.9643.12,103.0       Single Person Households, Aged 65-69, in 2008 ($000)100.00.00.00.00.0157.9200.00.00.00.0128.4210.9300.40.00.00.0166.2266.3401.80.025.00.0196.9337.7505.00.062.00.0230.1414.46013.50.0100.00.0265.9534.27034.010.1150.073.4299.2695.68079.050.0204.0177.1326.8906.990240.0124.0392.0292.2387.61,291.3       Married Households, Aged 65-69, in 2008 ($000)100.00.012.00.00.0346.9202.00.050.00.0232.1512.0306.00.090.00.0326.0685.94013.010.0125.00.0405.6853.35027.835.0170.00.0473.91,015.36058.080.0230.051.2521.01,242.270107.0137.0300.0163.7571.61,489.580220.0260.0428.0324.8622.01,913.790459.2464.0725.0622.0711.42,582.3  

Twitter: @PhilMoeller