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The Short Answer

Seven Steps to Avoiding a Retirement Crisis

A late-start guide to retirement savings.

Every day in the newspaper there is another article that might worry those approaching retirement. For example, one might read about large companies unable to meet their pension obligations transferring these pensions to government receivership. Even venerable and financially sound corporations are moving from the defined benefit pension model to the more popular defined contribution options, such as 401(k) plans. Some speculate that returns in the stock market over the next 20 years will not match those we have seen over the past 20. In this environment, it is more important than ever for workers to take charge of their own retirement security.

The problem is that many people have not been doing so. A new report issued by the Employee Benefit Research Institute and underwritten by several finance companies found that many Americans are unprepared to meet the financial obligations of their own retirement and seem to have too optimistic a picture of their financial situation. Compounding this problem, many people also tend to underestimate how long they'll actually live and, thus, what will be required for a comfortable retirement.

At Morningstar, we don't want to engage in broad-based speculation on how this problem can be solved at the national level, but for those getting a late start in retirement planning, we do have some practical steps you can take to avoid having your own retirement crisis. In this week's column, we'll provide some general guidance for those looking to jump-start their retirement planning. In next week's article, we'll provide more specific portfolio-construction and asset-allocation guidance.

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