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Has retirement vaporized?

You may have to begin investing more wisely

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How bad a hand was your retirement plan dealt over the past two years?

We hope that you are not among the poster children for 401(k) abuse: employees of Enron Corp., who were heavily invested in company stock when their company crashed and burned. In one publicized case, a 61-year-old saw a $700,000 nest egg vaporize to a mere $20,000.

But that's almost the worst-case scenario. If you had $1 million at the beginning of 2000 and your nest egg absorbed the back-to-back beatings taken by the S&P 500, you would have started 2002 with just over $800,000. With 10 percent annual returns, you could be back to millionaire status by the spring of 2004.

No matter how badly the past couple of years have treated your retirement plan, it's time to fight back. You may well have to save more and invest more wisely than in the past. Congress will help with the first part.

Starting in 2002, the law allows you to set aside more each year in your 401(k) or 403(b) plan. And, for the first time since IRAs became widely available, the amount that can go into these tax shelters has increased.

More money can also be squirreled away in tax-favored Keogh and SIMPLE plans for the self-employed. For those age 50 and older, Congress even offers the chance to make "catch-up" contributions — tools to help procrastinators make up for lost time and to allow all of us to make up for market losses.

The first step, of course, is to have a realistic idea of what you're shooting for.

"People are saving blindly," says Don Blandin, president of the American Savings Education Council. "They're simply trusting that they're putting in enough without doing the calculations."

But, he says, half the people who have taken the time to calculate their retirement-income needs say they realize they have to save more if they hope to retire when they want.

Like the 17-year bull market that lulled many into believing that stocks could only go up, the time for blindly plowing money into retirement accounts without a target or a timetable is over.

Use the worksheet found at www.kiplinger.com/tools/retcalc2.html to get a handle on how much you'll need to live comfortably in retirement and where the money will come from.