Retirement planning is all about The Number. So much emphasis is placed on amassing the right number of dollars for retirement that there was a bestselling book on the subject a few years ago called, you guessed it, The Number.

Here’s the problem with that approach. You can calculate your number down to the penny, but how do you get there? Let’s say I’m five years away from retirement. (I wish!) I invest in a diversified portfolio of stocks and bonds in my 401(k), and I’m saving aggressively. How much money am I going to have in five years?

Who knows? The answer is in the hands of the stock and bond markets. I can increase my chance of hitting my goal by saving more, but how much more? Five years isn’t a long time: I could easily end up with less money than I started with, even using a relatively conservative portfolio.

Is there another way to approach the retirement savings problem? This isn’t an ivory-tower question. For most of us, retirement saving is like a runaway project at work: you can be 90% of the way there and have no idea how long that last 10% is going to take. It’s like trying to walk from Seattle to New York, blindfolded. Can I get a compass?

“Okay,” you might say. “If market fluctuations make retirement planning so hard, let’s take the Invisible Hand out of the equation by investing in low-risk bonds or insurance products.” I am sympathetic to this idea, have written about it before, and will talk to one of its passionate defenders in a moment. But damn, have you looked at treasury bond rates lately? As I write this, you can lock up your money for 30 years and get a real (inflation-adjusted) return of 0.77%. That is the very definition of a hard sell.

Another way

Wade Pfau, a professor of economics at National Graduate Institute for Policy Studies in Tokyo, came up with a different approach and published it in the Journal of Financial Planning.

It’s not a new method of retirement savings: it relies on a diversified stock-and-bond portfolio like you probably already have. It’s a compass for your journey through the investment wilderness: a way of checking your progress without having to make a prediction about future market performance—a prediction that will certainly be wrong. I’m going to explain how it works, but feel free to skip ahead to where I link to a simple table where you can check your own progress.

What Pfau realized is: the market goes up, then it goes down. And vice versa. (Yes, this doesn’t seem like much of a eureka moment, but bear with me.)

Take the case of someone who retired in 1982. Lucky bastard: 1982 was the beginning of one of the biggest, longest bull markets in US history, and our guy can spend freely. But 1982 was also the end of one of the worst bear markets in history. That means our retiree had to save and save and save in order to be able to retire in 1982.

“Sure, the 1982 retiree has a high withdrawal rate, but this isn’t fair because it would have been tough to save enough to retire in 1982,” says Pfau.

So he fused together the ideas of savings rate and withdrawal rate. We start with a data set of market performance from 1871 to 2009. Then we invent a hypothetical retiree. Let’s call her Jane. We know Jane’s age, how much she has saved so far (in terms of a multiple of her salary), how much of her salary she needs to replace from her savings in retirement, and how much she is saving now (again, as a percentage of her salary).

Now we can use Pfau’s tables to ask: What if Jane were saving and retiring at the worst possible time in recorded investment history? At what age could she have retired?

You’re probably lost at this point, so let’s fill Jane out with some actual numbers, Ms. Potato Head-style. Let’s say she’s 55, needs to replace 70% of her salary in retirement, has already saved eight times her salary, and is currently saving 15% of her gross pay. According to the table, Jane could have retired at 68. What if she bumps her savings up to 20%? That knocks five years off her retirement date.

Here are the tables for savers age 35, 45, 50, and 60. (The tables for age 55 are in the original article.)

A dissenting view

The problem with taking a historical perspective, of course, is that the 1000-year storm could hit at any time, and Pfau admits as much in the paper. “Indeed, there is an important caveat that these ‘safe’ strategies are only what would have worked in the worst-case scenario from the past,” he writes. “Future retirees may experience even worse market conditions, and this must always be kept in mind.”

That’s not good enough, says Zvi Bodie, professor of management at Boston University and author of the forthcoming book Risk Less and Prosper. “This is an extreme case of what is called hindsight bias,” says Bodie, who advocates investing your baseline retirement money in low-risk assets. “It’s true he’s never seen a truly disastrous period of security returns in the US. But he sure has hell has seen it in Japan.” (The Japanese stock market is famous for hitting a high of nearly 40,000 in 1989 and then slumping to a small fraction thereof ever since.)

Again, Pfau freely admits this. “In the future we could have a worst worst-case scenario. A black swan,” he says.

Here comes the judge

I’m going to referee this debate. As I said, I’m sympathetic to Bodie’s view that we can achieve more certainty in our retirement planning by investing in safe assets, and to a significant extent, I follow this approach myself.

But it’s an approach few investors are likely to sign up for at the moment, when bond yields are at all-time lows, no matter how good an idea it is. Most people I know invest in a mixture of riskier and safer assets and hope for the best.

For them, Pfau’s tables can’t tell you for sure whether your retirement savings is on track—there’s always that pesky black swan to worry about. But they can tell you if you’re off track. If you’re 35, haven’t saved anything for retirement yet, and need a 50% replacement rate in retirement, you’d better be saving at least 15% of your salary if you’re planning to retire by 66—and that doesn’t take into account investment fees and expenses, emergencies, periods of unemployment, and the like.

Better make it 20%.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

Unfortunately, only about half of the workforce participates in employer-sponsored retirement plans according to a 2008 study published in the Academy of Accounting and Financial Studies Journal. Not surprisingly, working households tend to focus more on day-to-day expenses rather than retirement during a tough economic environment. Luckily, these problems can be avoided or eased, even in a turbulent market environment. Here are seven investment vehicles to help.

Fixed Annuities
Investors fleeing a volatile stock market should take interest in a fixed annuity. These annuities boomed when the stock market took a beating toward the end of 2000, causing sales in the first quarter of 2001 to surge. Seven years later, they gained popularity during one of the worst recessionary periods ever; sales estimated for fixed annuities were at $107 billion in 2008, up 60% from 2007, according to Beacon Research Fixed Annuity Premium Study. (These contracts provide a guaranteed income stream. Learn how they work and their benefits, check out An Overview Of Annuities.)

An investor may put in a lump sum and lock in a fixed interest rate of 4-10% for a period of time - typically between five and 10 years. Annuities provide either immediate or deferred payments. They can occur for set number of years or until death. The money is tax deferred, and the principal and interest are guaranteed. Generally, the payout has been 5% of the principal each year.

It’s important that investors stay attentive to “teaser rates” because once they end, the rate is reset depending on market conditions.

Variable Annuities
As the market begins to stabilize, investors tend to focus on a different annuity: variable annuities. This investment vehicle allows people to pick from a group of investments, such as mutual funds, stocks and bonds. Investors’ rate of return varies as a result. The lump sum of money invested can be moved between investment portfolios inside the annuity to take advantage of a strong stock market or preserve gains.

Keep in mind that with annuities, some withdrawals prior to the age of 59 and half can result in a 10% tax penalty and a surrender fee. Also, once payments are received, interest is taxed. In addition, these annuities aren’t guaranteed by government agencies. Whether you choose a fixed or variable annuity, plan for the situation that best fits your needs.

Target Date Funds
Target date funds are geared toward people who have a distinct retirement date in mind. Investors put their money into a diverse mixture of stocks and fixed-income securities. The fund manager automatically shifts away from riskier investments to more conservative investments as the target date approaches.

Assets held in these funds have grown in popularity since these funds emerged in the mid-1990s. This led to their designation as a qualified default investment alternative, which made them very common in 401(k) plans.

However, the funds were hit hard during the 2008 recession. Their unpredictable performance led to significant losses, which varied based upon how the assets were allocated. The average loss for funds with the target date of 2010 was nearly 25%. (These accounts will take charge of your retirement savings, but should you let them? See The Pros And Cons Of Target-Date Funds.)

When it comes to target-date funds,  investors aren’t always well aware of the risks and differences among the funds. The way the funds are marketed has also become a contentious issue.

Despite the potential volatility of these funds, target date funds are still considered a growth industry and many experts are working to make more, and better, disclosures.

TIPS
Investors, especially those on fixed incomes, turned to Treasury inflation protected securities, also known as TIPS, to hedge against inflation that may occur upon an economic recovery. The Treasury-issued bonds, with terms of five, 10 or 20 years, protect against rising prices and the future payout rate. TIPS adjust with the Consumer Price Index, which affects both the principal and the interest payments. A fixed interest rate is applied to the principal. As a result, the interest rate payment and principal increase with the rise in the index or with inflation, and fall with deflation or a drop in the index. The amount of principal that investors receive when TIPS mature will depend on whether the adjusted principal or original principal is greater.

Investors will need to consider the timing with this tool. It’s often difficult to determine when inflation or deflation will occur.

TIPS ETFs
TIPS exchange-traded funds (ETFs) are a basket of TIPS bonds compiled into a portfolio. Most TIPS ETFs last between eight and 10 years. PIMCO 1-5 Year U.S. TIPS Index Fund (ARCA:STPZ) offers immediate protection against inflation. Based on historical trends, TIPS with a short maturities have seen a higher correlation with inflation;  lower volatility is associated with indexes that follow the entire TIPS maturity spectrum. The products are domestic; however, one can buy into TIPS securities in developed foreign countries and emerging markets. This will expose investors to various currencies and provide some diversification from the dollar.

Stable Value Funds
Stable value funds are considered safe options when the market is volatile. They have generally made up one-fifth of assets in 401(k) plans.

Money is invested in a high-quality fixed income portfolio that includes U.S. government and agency bonds, corporate bonds and mortgages, and asset backed securities. (Find out how weighted average life guards against prepayment risk in The Risks Of Mortgage-Backed Securities.)

Contracts with banks and insurance companies protect these funds against volatile interest rates. They have a market and a book value unlike some other funds. They are also protected up to the amount of their book value by these “wrap” contracts. Wraps make sure investors receive the fund’s book value even if the market value drops.

Caution is needed when selecting these investment vehicles as critics have pointed out that investors are not always aware of what these instruments include or how they are built.

Dividend-Paying Stocks
Dividends are a steady source of income for investors in good markets, and limit the downside risk during down markets because their incomes (although not guaranteed) can remain positive whether price returns are good or bad.

The companies offering them are usually financially sound. Stable and increasing dividends can demonstrate the confidence of managers in their firms’ prospects. Investors tend to agree. (Seven words that are music to investors’ ears? “The dividend check is in the mail.”

Dividend yields were at their highest levels in 2008, and offered higher yields than 10-year Treasury notes. Lowered taxes on dividends made them even more appealing. It’s important to review the history of dividend payments from the companies when seeking out these investments.

The Bottom Line
An unstable economy may derail retirement goals but investors can get back on track by selecting some conservative approaches. Also, investors should educate themselves about how the investment was structured, its historical performance and the organization offering the investment vehicle. The more you know, the better a decision you can make and that’s the best way to keep your retirement savings safe.

Baby boomers are used to shaking things up. Due to their large numbers and political activism, boomers have transformed America at every stage of their lives.

Born between 1946 and 1964 and numbering more than 76 million, boomers are the largest generation born in America so far.

Doing well in the prosperity that followed World War II, Baby boomers have a reputation of being big spenders and poor savers.

Now the Great Recession has hit many baby boomers hard. They’re dealing with decreased value in their retirement funds and homes and job layoffs. As a result, the number of baby boomers who are ill-prepared for retirement is increasing.

If you’re a baby boomer who wants to retire, here are 10 tips to help you figure out today’s retirement challenges:

1. Estimate your Retirement Income and Expenses.

It’s important to have a realistic plan for retirement. If you don’t have a budget now, keep track of your expenses for several months to see where your money goes. Based on the figures, make a budget. Be sure to include money to set aside for an emergency fund of at least three to six months of living expenses. Use the pre-retirement numbers to develop your retirement budget. Remember to include things that will change with retirement such as no commuting costs, less money spent for clothes and shoes, and fewer meals out. Estimate your income in retirement as well. See Mint’s Create a Budget for information on how to set up a budget.

2. Decide When to Retire.

After you’ve looked at your projected retirement income and expenses, you’ll have a better idea about when you can retire. Part of this decision is estimating what you think the rate of inflation will be and taking a guess at how long you’ll live. Figuring out what percentage of your pre-retirement you want to live on also is important. You can find online calculators to help you or you may want to hire a certified financial planner to advise you. See the Certified Financial Planner Board of Standard’s website to locate a planner near you.

3. Keep Working or Start a Second Career

If you’ve planned to retire at age 62 or 65 but find your estimated retirement income isn’t adequate to provide the lifestyle you want, continuing to work or finding a new career are two options. In a recent study, workers in their 50s said they are likely to have to delay their retirement due to the recession, a Pewstudy reports.

4. Decide When You’ll Start Taking Social Security Payments.

If you decide to take your Social Security benefits at age 62 or 65, you’ll receive lower monthly payments than if you work longer. The date to receive full Social Security benefits increases annually. For example, if you’re a baby boomer born between 1946 and 1954, your full retirement age will be 66 years. If you’re a boomer born in 1960 or later, your full retirement age will be 67. Baby boomers should work until their full Social Security retirement age, or better yet until age 70, Eleanor Blayney, CFP, spokeswoman for the Certified Financial Planner Board of Standards, said in an email. If married, the higher paid spouse should delay retirement until age 70, Blayney said. See the Social Security Administration’s Benefits Calculators to estimate your potential benefit amounts using different retirement dates and levels of future earnings.

5. Decide Where You Want to Live.

If you’re like most baby boomers, you want to age in place. A new trend that could help you achieve this goal is the emergence of Neighborhood Villages. In these membership organization, older citizens are assisted by their neighbors so they can stay in the homes as they grow older. See the Village to Village website for information on where the villages are located or how to set one up. Another positive development for boomers who don’t want to move is the inclusion of provisions in the recent health care reform law to help older adults stay in their homes longer. While staying put is desired by most boomers, some may want to move to be near their children or to enjoy warmer weather. If you plan to relocate, do thorough research to find out the cost of living in the area, what medical facilities are available, and what the amenities are. If you need to make significant savings for your retirement, Blayney suggests taking a look at where you live and how much house you really need.

6. Pay off Credit Cards and Mortgage.

Since your income will be lower in retirement, it’s a good idea to get rid of much debt as you can before you leave your job. This will give you more flexibility with your cash flow and tax planning. While many Americans are challenged by credit card debt, it hits seniors particularly hard. Bankruptcies among seniors are rising sharply, driven largely by credit card debt, a study by the University of Michigan Law School shows.

7. Get to Know Medicare.

Begin gathering information about Medicare before you’re ready to retire. You’ll also need to buy Medigap insurance because Medicare only covers basic services. Be prepared to do research on Medicare and Medigap insurance. Both are complicated.

8. Learn About Long-Term Care Insurance.

Medicare and private insurances don’t pay for the majority of long-term care costs, the costs for nursing home care. You need to evaluate many factors when considering whether to buy this insurance: your health; whether the elders in your family went to nursing homes or died suddenly; whether you can afford the insurance; and if you want to leave money for your children. See this AARP fact sheet for details.

9. Plan for Out-of-Pocket Medical Costs.

Set money aside for medical costs not covered by Medicare or private insurance in short-term bonds or money markets. You could incur as much as $200,000 to $300,000. If you still have several years until retirement and are reasonably healthy, consider a high-deductible health insurance policy and set up a Health Savings Account for accumulating funds for these out-of-pocket costs in retirement, Blayney suggests.

10. Examine your Emotional Portfolio as well as your Investment Portfolio.

Baby boomers are a diverse group and their task during retirement is to find their path, Nancy K. Schlossberg, professor emerita at the University of Maryland and author of the book Revitalizing Retirement, said in an interview. The transitions of retirement aren’t easy. “It takes a while to get a new life.” Retirement is a challenge for many baby boomers. With these 10 steps boomers can begin to look at their spending and set goals for retirement.

Rita R. Robison is a consumer journalist who blogs at The Survive and Thrive Boomer Guide. Rita blogs via Contently.com.

If you’re like the average American, retirement savings has you totally bummed out. The Employee Benefit Research Institute (EBRI) reports that 27 percent of Americans are “not at all confident” about having enough money for a comfortable retirement, and only 13 percent are “very confident.”

You don’t have to go far to find other scary retirement savings figures, like how the average working person in their 60s has only $144,000 in their 401(k). At a recommended 4 percent withdrawal rate, that’s enough to produce $5,760 per year in retirement income. Ouch.

I don’t want to minimize how scary it is out there for the retirement saver. But I’m an upbeat guy, and I want to inject a Pollyanna-tinged ray of sunshine into this gloomy glade. You may not be as far behind on retirement savings as you think you are, and if you are genuinely behind, it may be easier to catch up than you think.

The standard model of retirement planning assumes you’ll take money you’ve accumulated in your 401(k) and other investments and withdraw it gradually over the rest of your life to replace the salary you were receiving at the time you retired. In order to keep up with inflation but minimize the risk of outliving your money, various studies have found that you can withdraw 4 percent of your portfolio in the first year and an equivalent amount, adjusted for inflation, each year thereafter.

In math terms, the standard model goes something like this:

Your salary × 25 = Your retirement goal

You see this formula all the time. Here’s how the Motley Fool put it: “So if you’re planning to live comfortably on $50,000 a year in retirement, you’ll need to have $1.25 million saved by the time you get there.” Plenty of online retirement calculators make the same assumption.

But even if you assume Social Security will disappear by the time you retire, that number is way too high. Here are five reasons why.

1. You won’t be saving for retirement any more when you’re retired

If you’re putting 10% of your salary into your 401(k), that’s 10% you won’t need to replace in retirement. This is an absolute no-brainer, but it has some interesting consequences we’ll get to in a minute.

2. You’ll spend less, year after year

People in their 80s are different from people in their 30s, 40s, and 50s in plenty of ways beyond wise aphorisms and Metamucil. As we get older, we spend less.

In a 2005 paper, financial planner Ty Bernicke offers evidence that spending drops off precipitously as we move into our 60s and 70s. (People in the 55-64 range even spend less than those aged 45-54.)

That’s even taking into account the fact that the elderly spend more on health care, and it holds even for wealthy retirees whose net worth is steadily increasing. That is, even retirees who are sitting on an ever-growing pile of loot for their heirs tend to voluntarily decrease their spending.

Facing down this data is kind of unnerving in the same way thinking about wills and life insurance is unnerving: I don’t want to think about slowing down, traveling less, spending less on food and entertainment, any more than I want to think about eventually spending zero on these things for eternity. But taking what Bernicke calls a “reality” approach to retirement planning could enable a typical retiree to save less or retire earlier.

3. Your tax bracket will go down

Most retirees are in the lowest tax brackets. Money you take out of your 401(k) or traditional IRA is taxable, but Social Security is only partly taxable, and Roth IRA distributions aren’t taxable at all. Sure, the tax code is going to change a dozen times between now and when you retire, but chances are, your taxes are going go down the day you kiss that cubicle goodbye.

If you’re budgeting for retirement based on the assumption that you’ll spend as much on taxes as you do today, you’re budgeting too much.

4. You can always annuitize

If your retirement savings are marginal (but not way below par), you can turn them into a lifetime monthly income stream by buying a single-premium immediate annuity (SPIA) from an insurance company. Basically, you hand the money over to an insurance company and it gives it back, with interest, over the rest of your life. If you live longer than the insurance company expects, you win. Even in the current low interest rate environment, an inflation-adjusted SPIA pays over 4 percent annually if you annuitize at age 65.

Annuities are backed, up to a maximum, by a state guaranty agency. And you don’t have to make an all-or-nothing decision at 65. You can annuitize some of your money—maybe enough to guarantee a minimum base level of income you don’t want to drop below—and invest the rest. You can wait until you’re 70 and see how things look then; the older you are, the bigger the monthly payout from a SPIA. And interest rates could go up.

5. Every dollar you save reduces your current standard of living

Ah, “reduces your current standard of living” is such a negative way to put a beautiful concept.

Here’s what happens if you decide to bump up your retirement savings by 2 percentage points today—say, from 8% of your paycheck to 10%. For a couple of months, you grumble about your smaller paycheck. Then you get used to spending slightly less and forget about the supposed good old days. Your retirement account will grow faster, and by the time you need to draw upon it, you’ll be able to make smaller withdrawals thanks to your lower standard of living.

In other words, you have more savings to replace less spending. It’s like the universe just gave you a 401(k) match. If you took that extra 2 percent and gave it to charity or sent it to me every month instead of saving it, you’d still be better off, because you’d be saving at the same rate as before but have less spending to replace.

Hmm, did I just prove you’d be more financially secure if you sent me some money? I reckon so.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

In Canada, the primary savings vehicle for retirement is the Registered Retirement Savings Plan (RRSP). The RRSP is an account that is designed to accumulate money for retirement. I often describe the RRSP as a bucket of money. When you put money into the bucket, you get a tax deduction. Once the money is in the bucket, you can invest the money in many different options including GICs (Guaranteed Investment Certificates), Bonds, Stocks, Mutual Funds, and lots of other choices. The great news is any growth, interest or profits on the investments stays tax sheltered as long as the money stays in the bucket. If you take money out of the bucket, then you have to pay tax on any withdrawals. Although you can take out lump sums of money out of the RRSP, the RRSP is still designed primarily as an accumulation vehicle for retirement.

What is the RRIF?

A Registered Retirement Income fund (RRIF) is simply just another bucket. In fact, the bucket looks very similar to the RRSP bucket but it has a different label on it. There is one big difference; there is a hole at the bottom of the RRIF bucket. Since there is a hole, some of the money inside the bucket will drain out which essentially creates an income stream.

In other words, the RRIF is a vehicle to create a regular stream of income from the RRSPs. Typically this happens when you need a regular paycheque at retirement.

When can I convert the RRSP to a RRIF?

Essentially you can convert an RRSP to a RRIF whenever you want. Theoretically you can convert the RRSPs to income in your 20s, 30s, 40s, 50s, or 60s. Practically, however, you would only convert to income when you NEED regular, consistent income and that usually happens when you retire.

If you have not converted your RRSPs into income by December 31^st in the year in which you turn 71, the rules state you must convert your RRSPs to income. You can do so by either purchasing a Life Annuity or move the RRSPs to a RRIF.

How much income can I take out?

Remember that hole in the bucket? That hole can be as big as you want it to be. In other words, there is nothing restricting you from taking out more money by making the hole bigger. The key is you cant make the hole smaller than the minimum size. Every RRIF has something called a RRIF minimum income.

The minimum income is determined by a formula: Your RRIF balance x 1/(90 – age). For example, if you were 65, your minimum income would be 1/25 or 4%. The way the formula works, your minimum income increases every year and then at age 71, the minimum income moves to a preset amount that changes every year. Here’s a handy chart:

How does the tax work?

When you move from a RRSP to a RRIF, it is considered a transfer and there is no tax paid on the transfer of money from a RRSP to a RRIF. Tax is only paid when money is taken out of either bucket and used. For a RRIF, only the income is taxed and the amount that comes out of the hole is taxed at your marginal tax rate at the time of withdrawal.

RRIFs can be a retiree’s best friend if used properly. To learn more about RRIFs, visit my handy online RRIF guide.

Jim Yih is a financial speaker, fee-only advisor and the man behind Retire Happy Blog. For the past 20 years, he has written extensively about retirement, government benefits and personal finance.

Photo: iStockphoto

Recently I wrote about how to simplify your portfolio down to three basic low-cost index funds. I assumed that a couple would have four retirement accounts: two 401(k)s and two IRAs.

Reader Jason asked why we couldn’t simplify this even further:

Why should you have an IRA and a work portfolio? Depending on your match situation should you go all in at the work 401(k) and get the best match?

Jason, you should always contribute enough to your 401(k) to get the maximum employer match. This is the only thing that literally everybody in the personal finance game agrees on. If we ever make contact with intelligent alien life, the first thing financial planners will ask the aliens is whether they’re maximizing their employer match.

But there are still plenty of good reasons to have an IRA in addition to your 401(k) (or 403(b), or 457). I spoke with two certified financial planners, and we came up with five good reasons.

1. Your 401(k) sucks

Too many 401(k)s are stuffed with expensive mutual funds designed to transfer money from your paycheck to a fund manager. Large companies tend to have great 401(k)s. Small companies? “I work with employees of many different types of companies, many of which are small,” says Dave O’Brien, a certified financial planner in Richmond, Virginia. “Your plan is probably expensive as all get-out.”

How can you tell? Each fund in your plan has an expense ratio, expressed as a percentage. If a fund’s expense ratio is 1 percent and you have $1,000 in it, you pay $10 this year in expenses. Over time, this adds up.

Your 401(k) is required to disclose this information, and more than 1 percent in expense ratios is too expensive. Good 401(k)s offer funds that charge less than 0.1%. Also, look for those five-letter mutual fund ticker symbols. “If there’s no ticker symbol, that’s a red flag,” says O’Brien, who also consults with companies designing 401(k)s. Missing tickers often indicates that your 401(k) is run by an insurance company rather than an investment company–and that often indicates high costs.

If your 401(k) stinks, you should still hold your nose, look for the best funds of the sorry bunch, and contribute up to the match. After that, though, put the next $5,000 into your IRA, says O’Brien. “Get the employer match, then put your money elsewhere,” he says. “Go for one of the low cost places—Vanguard, Fidelity.”

2. You can “tax diversify” by having both a 401(k) and a Roth IRA

Gallons of virtual ink have been spilled debating Roth vs. traditional IRA. Here are two typical arguments:

• -You should use a Roth IRA. Taxes are sure to go up and you should pay them now and get it over with.
• -You should use a traditional IRA. Take the tax break now before Congress changes its mind and starts taxing Roth IRAs.

Unfortunately, it’s impossible to know in advance which will be better unless you can foresee your own future and read the mind of Congress, which does not, technically, have a mind. “We don’t really know what is coming down the pike,” says Tim Maurer, a CFP with the Financial Consulate in Baltimore.

If you have a traditional (non-Roth) 401(k), as most people with 401(k)s do, it works like a traditional IRA: you pay no taxes when you put money in, only when you take it out. Combine that 401(k) with a Roth IRA, which works the opposite way, and you have a chocolate and peanut butter scenario: two great tastes, etc. Once you’re retired, you can withdraw the money in whatever way will make the IRS least flush: Roth first, 401(k) first, or some combination.

Furthermore, says Maurer, a Roth offers flexibility that a 401(k) doesn’t, because you can withdraw Roth contributions (but not interest) at any time without penalty. That money can be used for an emergency, college tuition, or a house down payment. He’s not saying you should steal from your retirement to buy these things, obviously. But if you need to take an early withdrawal, having a Roth to take it from is a lot better than being saddled with a 401(k) loan or a 10% penalty and tax bill. “The fact that the Roth exists, and that you can tap it if you absolutely need to, makes it a more attractive option,” says Maurer.

3. Your current 401(k) doesn’t allow incoming rollovers, and you have an old 401(k) (or two, or three) to consolidate

An incoming rollover is when you take money from an old 401(k) and put it into your current 401(k), with no penalty or tax consequences. Only some plans allow incoming rollovers, and it’s usually a bad idea. If you have a lousy, expensive 401(k) like Dave O’Brien warned you about, why would you put more money in there than you have to? This silo is rat-infested? Great, let’s store all our grain there!

But keeping money sitting around in old 401(k)s is also a bad idea, because those plans are probably just as expensive, and it makes it hard to understand your overall portfolio. You can do a direct rollover into an IRA, pay no tax, and have access to low-cost mutual funds at any major fund company.

Occasionally, however, an incoming rollover makes sense. “It’s a good idea if your new employer’s retirement plan offers you broad diversification, total transparency, and low cost,” says O’Brien. The quintessential example? The federal government’s Thrift Savings Plan ( TSP ), the country’s best 401(k), available to federal employees and members of the armed forces. “You can’t get better than TSP,” says O’Brien. And it allows incoming rollovers.

4. You’ve maxed out your 401(k) and still have more money to save

Self-explanatory, right? The maximum 401(k) contribution for a person under 50 is $16,500. For 50 and over, it’s $22,000. If you contribute more than this, you’re the LeBron of savings. You probably also make too much to contribute to a deductible IRA, so look into doing a backdoor Roth.

5. You might learn something

A 401(k) offers a default investment option and advice from the plan administrator. An IRA at a discount fund company offers neither. This is your opportunity to learn a little bit about investing. Curl up with a good book, like Burton Malkiel and Charles Ellis’s Elements of Investing, and 100 pages later, you’ll be pissed off at your overpriced 401(k) and ready to take charge.

I believe in you. So does Tim Maurer. “If we can’t be trusted with our own dollars,” he says, “we’re going to have a retirement without prosperity.”

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

photo: Kevin Timothy

Retirement is a big uncertainty for many in the United States, study after study showing dismal average 401(k) balances and predicting a bleak future for Social Security benefits.

North 0f the border, things are different. In Canada, there are two paycheques you can receive from the government in retirement: Canada Pension Plan (CPP) and Old Age Security (OAS). Most Canadians will receive these cheques so when it comes to retirement planning, it is very important to be aware of how these programs work and how much they pay.

Canada Pension Plan

Technically, CPP is not really a government benefit. Instead, it is a defined benefit plan that is mandatory for all working Canadians between the age of 18 and 65. When you work and earn an income, you must contribute to CPP and the employer must also contribute to CPP.

The amount you get in retirement is really dependent on how much you contribute during your working years. Currently the maximum CPP available in retirement at age 65 is $960.00 per month, or $11,520 per year.

You can collect CPP early

Although the normal age of the CPP retirement benefit is age 65, you can collect CPP as early as age 60 but at a reduced amount. For any years prior to 2012, the reduction is 0.5% for every month prior to your 65^th birthday. After 2012, the new CPP rules come into effect and you will face a reduction of 0.6% for every month prior to your 65^th birthday.

Don’t count on the maximum

Remember that your retirement benefit is based on the amount of contributions you had while you were working. The average amount of CPP being paid out is only $504.50 per month. In other words many people do not get the maximum CPP. The best way to determine your CPP amount is to simply call Service Canada at 1-800-277-9914. Here’s a more detailed explanation of how to determine how much you will get from Canada Pension Plan.

Old Age Security

Old Age Security is a monthly paycheque that comes directly from the government. Unlike CPP, this program is funded directly out of general tax revenues.

OAS is very different than CPP:

• You cannot collect the benefit prior to age 65
• The amount you get is based on residency and not contributions. To qualify for the maximum, you need to be resident of Canada for 40 years between the age of 18 and 65.
• The maximum OAS is currently $524.23 per month.
• You can lose some of your OAS if your income is greater that $67,668. If your income exceeds $109,607 you will lose all of your OAS.

In addition to the basic OAS pension, low-income seniors may qualify for other retirement benefits such as the Guaranteed Income Supplement (GIS) and the Allowance. The threshold for low income depends on whether you are single, married or widowed. Few people qualify for the maximum GIS.

The rules for government benefits are not easy to understand. For more information, contact Service Canada.

Jim Yih is a financial speaker, fee only advisor and the man behind RetireHappyBlog.ca. For the past 20 years, he has written extensively about retirement, government benefits and personal finance.

(iStockphoto)

Have you noticed that your paychecks have been a bit larger than normal lately? That’s because in 2011, the government is cutting the social security payroll tax paid by individuals from 6.2% to 4.2%.

How much is that in stone cold cash? If your annual income is $40,000, that’s $800 over the course of the year divided among your bi-weekly or monthly paychecks. If you earn $80,000 annually, your extra pocket money is $1,600. For those who make $106,800 or above, you’ll see an extra $2,136. Since social security is taxed individually, married couples could get up to a $4,272 take home pay boost for the year.

Now, what should you do with your extra moolah? Sheryl Garrett, the author of the Personal Finance for Dummies Workbook, a Certified Financial Planner and founder of the Garrett Planning Network, suggests these 10 ways to wisely spend your money, in order of importance for increasing your financial standing for years to come.

Balance Your Budget

If you live paycheck to paycheck, or on a tight budget, the extra $66 per month (if your annual income is $40,000) could mean the difference in paying your electricity bill this month – or not. This month, balance your budget with the fatter paychecks. Next month, adjust your budget so your expenses and income balances when the payroll tax cut expires. Since this bonus money is a one-year deal, don’t rely on it next year to cover basic expenses. Focus on other expense-reduction strategies: negotiate your next lease, use coupons at restaurants, ditch buying grocery items that are spoiling in your fridge, or change your IRS withholding if you get a refund every year.

Settle old debts

“Wouldn’t it be nice to pay off your mom and dad for the money they lent you for an apartment deposit?” says Garrett. Use this money to pay off any money you borrowed from family or friends.

Pay Off Credit Cards (and keep them that way)

Credit cards are easiest to attack, since you see the bill each month. If you use Mint.com, you can set up a goal to pay down your credit-card debt, and Mint will prepare a customized plan for you based on your cards’ balances and interest rates.

Boost Your 401(k) Contributions

If you’re currently not taking advantage of the full amount your employer will match on your 401(k), use your extra cash here. Once you’ve fulfilled this amount, deposit any remaining funds in a Roth IRA.

Contribute to a Roth IRA

Unless your adjusted gross income is higher than $122,000 if you’re single, or $179,000 if you’re married, filing jointly, you are eligible to contribute up to $5,000 in a Roth IRA. (The contribution limit is $6,000 if you’re 50 or older.) If you haven’t already made that contribution for 2010, you have until April 18, 2011, to do so. You can also, of course, contribute another $5,000 for 2011. While the amount you contribute is not tax deductible, you’ll reap the benefits once you start making withdrawals: all your withdrawals, earnings included, are completely tax-free as long as you’ve held them for at least five years. (And, of course, you need to be 59 ½ or older to make penalty-free contributions.)

Buy Yourself Marketable Skills

Enhance your ability to earn money in any of a number ways. If you’re actively looking for a job, consider hiring a resume service to help polish your resume. If you’ve been thinking of going back to school, take your GRE or GMAT test. Take a continuing education course. Buy a snazzy suit for interviews. The key is to spend cash in a way that will boost your income, now or in the near future.

Invest in Your Health

If one of your New Year’s resolutions was to improve your health, now is the time to see a nutritionist. If you’re a smoker, join a stop smoking program. Buy a bicycle to save on gas, or caulk your windows or insulate home. With every investment, think: will this save me money next year by doing this action?

Shop for Organization Tools

Luckily, Mint.com and basic tax software is free, but consider upgrading to the non-free version if you have a home business or more complicated tax forms. If your important documents are scattered across the house, buy a file cabinet or an expandable file organizer. The better organized you are, the easier it will be to manage your money.

Take a Vacay

If you already have all these categories covered, take a vacation. A yoga retreat, cruise or weekend with your honey at a B&B may be just what you need to return home and spend quality time tweaking your budget to perfection.

Reyna Gobel is a freelance journalist who specializes in financial fitness. She is also the author of Graduation Debt: How To Manage Student Loans and Live Your Life.

photo: ♥, ioana

Most online retirement calculators ask the same question: how much do you expect your investments to grow per year? Eight percent? Six percent? Isn’t there a checkbox for “who knows?”

The problem with this approach isn’t just that nobody knows off the top of their head what they expect to earn on their investments. It’s that they can’t know—especially if they’re heavily invested in the stock market. What if you live today based on the assumption that your stocks will return 10% annually, but when you hit retirement age, it turns out they’ve only returned 6%? You’ll have to postpone retirement—if you’re lucky enough to keep your job.

Economist Laurence Kotlikoff, a professor at Boston University and author of Spend ’Til the End, thinks he has a better way. What if we treat the stock market portion of our portfolio as a gamble? Live now as if our stocks are going to fail spectacularly; this standard of living is your “income floor.” Then, in retirement, we can be pleasantly surprised. Even if our stocks do poorly, we get a little boost in retirement. If they do well, we get to live it up.

Kotlikoff calls it Upside Investing, and as of today, he’s built the feature into his popular retirement calculator, ESPlanner Basic (the software costs $60 for the Upside Investing feature; you can try the rest for free). He recently ran the program on his own portfolio. “I was amazed,” he says. “I’d been waiting to see this myself, and I was amazed to see, by putting less in the market, you get a much bigger floor, and the upside loss is not so great.”

Hit the floor

Here’s how Upside Investing works. You give the software all of the information you’d share with any retirement calculator: your income, existing savings, expected social security benefits, and so on. (You can also say that you expect major inflation, or a tax increase, or other bad mojo.) You also tell it how much you’re putting into the stock market and when you want to start selling those stocks and buying safe assets (inflation-protected treasury bonds).

Then the program calculates. And calculates and calculates. You sit there for several minutes while the computer runs millions of scenarios. (I told Kotlikoff the program was slow, and he was mildly offended; given how much work it’s doing, he says, it’s actually amazingly fast.) Finally, you’re offered a prescription: here’s how much you can spend per year between now and retirement. Then, in retirement, you can continue spending at least that much, plus a bonus that depends on the performance of your stocks.

This, Kotlikoff argues, fits the psychology of investors better than the traditional “spend as if your stocks are going to do well” method. “Large fractions of the population have these preferences which we economists refer to as habit formation preferences,” he says. That means you get accustomed to a certain lifestyle and get very upset when your living standard drops. “So you want to plan to establish kind of a floor to your living standard, and you’re happy to have it go up.”

Retirement upside the head

Enough theory. I logged into ESPlanner and ran some scenarios. Kotlikoff was right…for me, anyway. Here’s what I learned:

1. By lowering my allocation to equities, I can raise my living standard today at the cost of slightly less upside in retirement. Whether I’m 50% in equities or 10%, my retirement looks much the same: I’ll get at least today’s living standard, and probably somewhat better.

2. This is true, in part, because I’m making generous assumptions about the solvency of Social Security and my wife’s pension, which together will, theoretically, cover most of our needs in retirement. Even with more pessimistic assumptions, however, ESPlanner tells me there’s little reason for me to own more than, say, 20% equities. (I also tried running it with the assumption that my wife’s pension would be converted to a 401(k), and this still didn’t have much of an effect.)

3. If you’re in the middle of your career, do not have a pension, and have a modest amount in your 401(k), Upside Investing will tell you to start saving an enormous amount of money, and you will want to go get drunk.

For Kotlikoff, whose own portfolio took a big dive in 2008, Upside Investing is all about convincing people they don’t need the stock market as much as they think they do. “Before we start putting people into risky securities,” he says, “we should show them exactly what life would be like, and here’s the upside and here’s the downside.”

“I think he’s targeting kind of a small group of individuals,” says Jeremy Vohwinkle, a chartered retirement planning counselor who writes the Generation X Finance blog. “If you’ve already got money saved, you’ve done well thus far, it’s time to kind of ratchet things down and lock in some steady gains.”

This is financial planning conventional wisdom, Vohwinkle points out: your investments should get more conservative with age. But, he warns, “younger people could read these kind of articles and think, oh, well maybe I should sell my stock and just put it into TIPS or put it into some kind of fixed asset — and that’s just not going to work, because they haven’t saved up enough to where that 2% real return is going to make any kind of difference.”

Improve your living standard while sitting on your butt

What if I were one of Vohwinkle’s normal human clients, just getting started on retirement saving with a few thousand bucks in an IRA? Taking an Upside Investing approach would kneecap my current standard of living.

“The stock markets are really a wild ride,” says Kotlikoff. “We can’t fantasize about those realities. These are tough tradeoffs.”

But there are other ways to raise your living standard besides taking on more risk and crossing your fingers. Kotlikoff reels of a bunch of ideas: compare Roth and traditional IRAs; take Social Security earlier or later; adjust your levels of retirement and regular savings; pay down your mortgage; open a 529 college savings plan. (He points out, naturally, that ESPlanner can help you determine which strategies offer the biggest payoff, and that there’s a list of free case studies on his website.) “I think almost everybody can get their living standard up from 5% to 20% just by playing with our software,” he says.

Are you down on the upside?

This is not meant to be a love letter to a particular piece of software. Upside Investing is about human psychology, not bloodless economic analysis, and it’s an approach you can take even without buying the software. I plead guilty to those “habit formation preferences”: I’d be pleased if my living standard went up in retirement, but devastated if it went down.

Not everybody shares this conservative outlook—or has the means to do so. “We don’t know whether it’s 20% or 80% of the people out there” who would benefit from the upside approach, says Kotlikoff.

If you think you might be in that group, however, it’s worth the price to give it a try. (Yes, there’s a money-back guarantee.) “His calculator’s definitely going to give you a pretty good ballpark of where you stand and how feasible that plan’s going to be,” says Vohwinkle. In other words, ESPlanner can tell you whether you’ve saved enough to ratchet down your risk without having to live on Top Ramen.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

For nearly 40 minutes, the administration fielded questions crowdsourced from Mint.com, Examiner.com, and MSN Money readers. The emphasis on social media was evident in the State of the Union itself, which namechecked both Google and Facebook, a first for a U.S. administration. Below is a recap of the issues discussed, and above is a video of the event.

Social Security concerns

Goolsbee opened by echoing the theme of the State of the Union — winning the future by out-innovating, out-educating, out-building and bringing rationality and thought to the economy. While he emphasized the U.S. was the richest country in the world, and with the most productive workers, he acknowledged the concerns of Mint.com readers like Ana Marina Soriano who face an uncertain economic future in a time of high unemployment, threats to social security, and a lack of incentives for long-term saving.

Soriano asked, “”I don’t really have much faith in social security benefits for my generation. What is in place to keep the system up and running?”

“We’ve known for decades about the fiscal challenge associated with the aging of the population and rising healthcare costs,” said Goolsbee, but “the deficit size is not primarily due to discretionary spending.” Going on to say that the forthcoming Obama budget will bring discretionary spending to levels that “have not existed since Dwight Eisenhower was president,” he expressed a willingness on the part of the administration to consider any plan for social security that ensured its survival and prevented it from being privatized. “It’s the most popular government program that has ever been and it has helped assure the safe and secure retirement for millions and millions of people.” Goolsbee stressed that social security is something that requires long-term solutions not short-term fixes.

Unemployment fears

On jobs, Goolsbee said we need to get the job engine running and must now move out of what he called a “rescue phase” and into a growth phase. “It isn’t the case that all the jobs are growing internationally. There were 1.3 million new private sector jobs in the U.S. in the last year. That’s a good start, not near enough but we’re coming into 2011 with a little bit of momentum.”

Still Mint.com readers like John Harvey are concerned with the spending freeze. He asked: “How will spending freeze not result in massive jump in unemployment as in 1937?” While Goolsbee cautioned against comparisons to 1937, he did say that it was important to proceed with more caution than the administration did at that time.

“At this moment, you want to be careful yanking the rug out from what is a fragile recovery. The reason the deficit is large last year and this year is not from the long-run fiscal challenges facing the country, it’s because we just went through the worst recession in virtually all of our lifetimes. When that happens, the automatic stabilizers such as tax revenues go down, spending on unemployment benefits, on a variety of cyclical factors, go up. That’s the main thing driving the business cycle in the short run. The spending freeze on discretionary non-security that the president outlined is over the next five years.”

Still not all of the adminstration’s efforts are aimed at long-term fiscal policy alone. “The president’s tax deal at the end of last year was specifically designed to get more activity in the here and now,” said Goolsbee, “as you look out over the next five years, we’ve got to make tough choices to keep the fiscal situation from deteriorating. It’s a bit of a balancing act. Your reader is exactly right. We want to be mindful not to do things that drive up the unemployment rate in the immediate term. It’s 9.4 percent. It’s way too high. We’ve got to do everything we can to get that down.”

Retirement saving questions

On retirement saving, user “phillip24″ (no full name disclosed) wanted to know, “Will the administration be announcing new initiatives related to retirement saving?”

“We have tried over this period to reduce taxes and give incentives for people to save,” said Goolsbee, “Most of the new programs and incentives we have now are about trying to encourage the private sector to get their employees to save.” One such program encourages companies to make automatic 401(k) enrollment the default option so that even busy people will get the benefit of 401(k) savings plans without too much effort.