All the recent publicity about the crisis in the Social Security system with people lobbying for and against “Personal Social Security Accounts” has caused more and more of us to wonder about our retirement.

Recent statistics indicating that the savings rate among Americans is at an all-time low have caused even short-term thinking politicians to begin to worry about the social problems arising in the future if something does not change.

It is estimated that 77 million baby boomers will be retiring in the next few years. We all know this will put a strain on Social Security, but it will also strain the private retirement industry.

The actuaries inform us that longevity is increasing and that people perhaps can look to as long a period in retirement as they had to accumulate the funds to support them during that time.

The government indicates that an adequate amount of income for retirement is an amount equal to 75% of earnings during the last years of work.

The government believes the reason for the ability to survive on less income after retirement apparently derives from the savings that will occur due to the end of commuting expenses, purchasing work clothing, restaurant meals eaten out while on the job, and the like.

It’s doubtful that these reduced expenses will, in fact, be enough to cut retirement expenditures by 25%, particularly when considering the increased medical expenses that are a natural byproduct of the aging process. Yet, even if the 75% figure were accurate, it is still difficult for the average person to be able to calculate how much must be accumulated to fund that amount.

Once upon a time, a significant number of us had a great deal more retirement security, because actual monthly pensions were guaranteed by employers. These pensions, combined with savings and Social Security, could be counted on to maintain a lifestyle adequate to personal needs.

Today, few employers offer guaranteed pensions. We are expected to fund the major portion of our own pension plans through IRAs, 401(k) plans or similar defined contribution plans and by private savings. The government seems to believe that, even though there are severe limitations on the amounts of pre-tax dollars that can be contributed to tax-deferred savings plans, the combination of these elements is adequate to enable people to achieve the goal of retirement income equal to 75% of the income earned during the final years of employment.

Government statistics indicate the average per capita income in the U.S. at the end of 2004 was around $32,000. Assuming we are dealing with the retirement of a working couple, this would mean that the average income of that couple would be in the vicinity of $62,000–a number that may, in fact, be high due to the fact that there is often an unfortunate disparity in the income of men and women.

However, giving those numbers the benefit of the doubt, this means that a couple retiring this year should plan to fund a retirement of at least $46,000 in annual purchasing power in today’s dollars. In 2004, the average monthly Social Security benefit for a retired couple, with both receiving payments, was slightly more than $1,500.

Annually, this amounts to around $18,000. This leaves the average American couple with approximately $28,000 that has to be funded outside of Social Security (we have assumed Social Security will be there and that the value of the annual payments will equal the value of current dollars).

A conservative investment program–one that does not invade principal and that is not wildly speculative but that provides for reasonable protection against both inflation and deflation–might currently yield 5% per annum. At this rate, the average American retired couple needs to have accumulated $560,000 to fund the non-Social Security portion of retirement.

Since the major asset of most retiring couples is their home, and we assume most retirees will want to stay in their homes, or at least in a retirement home of similar value, the bulk of the $560,000 necessary to fund the retirement income goal has to come from liquid or semi-liquid savings that are not represented by the home. Yet, within the last 2 weeks, there have been alarming reports that the savings rate in the U.S. has dropped to zero!

Since that rate includes contributions to retirement programs, it means the likelihood is small that retirees are anywhere near their needed goals for funding adequate retirements. So, an increasingly large number of citizens will have to rely primarily on Social Security for retirement income–at a time when the future of Social Security seems more and more problematic.

The answer to the question “how much is enough?” to fund retirement security almost seems to beg the real question, which is: “How do we convince Americans that they are doing too little?”

Private savings accounts and increases in housing values will do little to solve the problem of low savings rates. We need increases in savings rates, not merely reallocation of those already in existence.

It has been said that many fashionable women believe one cannot be too rich or too thin. It seems the corollary is, “there is no such thing as ‘enough’” when it comes to the need for savings for retirement income.

Norse N. Blazzard, JD, CLU, and Judith A. Hasenauer, JD, CLU, are attorneys in the Pompano Beach, Fla., office of Blazzard, Grodd & Hasenauer, P.C. Their e-mail is Norse.Blazzard@bghpc.com.

With saving rates low, how will future retirees fund the 75% of pre-retirement income the government says they will need to live on?