This has been another brutal week in the market, with it down 2% as of this writing. That comes on the heels of a Financial Times poll showing 62% of people surveyed either felt worse off or the same during the past four years. Yet, the market is up substantially and people with 401(k)s are, by and large, much better off.

So why the poor outlook. Shouldn’t people feel better knowing their retirement accounts are up? I think it’s a couple of things. First, according to the Pension Rights Center (pensionrights.org), of all 137 million full and part-time workers, only 55% participate in a workplace retirement plan, and of those, only 22% have a defined-benefits pension plan. That’s a dramatic decrease from pension plans, and when you consider private-sector workers, it’s even more dire. In 1980, more than 60% of private sector workers had defined benefits plans. Today, fewer than 10% have them.

Sixty-five percent of private sector workers today have defined contribution plans. And the market is up nearly 400% since the meltdown in 2008. So why aren’t people happy?

Part of it is because it’s hard to save. With housing, health care, food, and energy costs rising, the cost of putting kids through college, etc. combined with 40 years of stagnant wage growth, it’s really, really difficult to put money away for retirement. Those who can are largely upper middle class who have ample disposable income. Those living from paycheck to paycheck have a great deal of difficulty doing so. The result is today’s average 401(k) among those 60-69 years old is only $176,000.

Using the standard 4% Rule for determining the amount of income generated by market-based accounts, $176,000 would only generate only $7,000 per year. That and average Social Security benefits of $16,000, means the average person has around $23,000 per year to retire on. Couples should have around $46,000 per year.

So, if putting money away in the market seems to be an inefficient way to manage retirement, what are the alternatives? And what is someone, who has done so all their lives, to do to improve their situation.

It’s important to understand that anything you can do to improve your situation requires time. It’s impossible to take that 401(k) balance and do anything meaningful next year or even the year after. In order to make headway with providing significant income takes about 10 years. That’s how long it takes your account to double at 7.2% growth. You can also improve your Social Security outlook by delaying it for as long as you can, up to age 70 if possible.

So, can we help you if retirement is just around the corner? Is there a reason to come in and talk with us, or another advisor who specializes in retirement income planning (which is key)? The answers are maybe and absolutely.

First the maybe. The absolutely comes later.

Assuming $300,000 in your 401(k) account, the 4% Rule would provide income of about $12,000. In a few years that could grow, based on what the market does. If it continues to go up, you’re good. But if it goes down, things could go bad. Assuming it does continue to go up by 7.2% a year, extending the current bull market another 10 years, you double the money you can withdraw to $24,000 a year by age 70. If you work until 70 and continue to contribute the withdrawal will be higher.

I often write and speak about various risk classes. In the market, the risk you deal with is how much you can sell your shares for at any given time. You have no way of predicting that, which is why it’s important to limit your annual income to 4% or less. Thus, even if the market does cooperate and you double your money by the time you retire, you’ve only increased your income to about $24,000 since your risk is so unpredictable. Also, that would require about 10 years at 7.2%, meaning if you are currently 60, you would have to wait until age 70 as mentioned previously. In addition, you must hope the market continues to hold during your retirement. If it crashed again, your income could go way down, or you could run out of money before you die. Current Monte Carlos runs say that could happen as much as 15% of the time.

However, if you transfer to a more predictable risk category, using an income generation account, you may do much better. For example, I may be able to leverage that $300,000 to produce income of as much as $24,000 a year beginning age 66. Not only that, but under current conditions, you might even see that go up to as much as $33,000 at age 72. Any income would be guaranteed to last for the rest of your life, or lives, if you are married.

So, age 60, with two options. Wait until age 70 to retire, and maybe you will have increased income if the market cooperates. Remember, our goal is $24,000 from the current $300,000 in your 401(k). And, even if that all happens, you could still run out of money 15% of the time. In fact, the model calls for it.

Or you could move your money to a guaranteed income generator, and have $24,000 a year at age 66, with an increase to $33,000 at age 72, assuming and average growth of under 5.5%.

Studies show that people with guaranteed income streams worry much less in retirement than people who rely on market-based assets. In addition, people with guaranteed income generators often have much more income as per the above illustration.

This brings us to the absolutely.

We may very well be able to do this or better for you, using our everyday guaranteed approach also used by millions of other retirees to generate guaranteed lifetime incomes superior to what you can generate in the market.

But you can never know unless you come in and discuss it. So absolutely. Come in and talk to us.

Stephen Kelley is a recognized leader in retirement income planning. Located in Nashua, he services Greater Boston and the New England areas. He is author of five books, including “Tell Me When You’re Going to Die,” which deals with the problem unknown lifespans create for retirement planning. It and his other books are available on Amazon.com. He can be heard every weekend on the “Free to Retire” radio show on WCAP and WFEA, and he conducts planning workshops at his New England Adult Learning Center, located in Nashua. Initial consultations are always free. You can reach Steve at 603-881-8811, or at www.FreeToRetireRadio.com.

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