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Stop Panicking; Start Calculating

You've saved diligently over the years, socking away a good chunk of each paycheck into your work retirement plan and IRAs. Or, maybe, not so much.

Conscientious saver or complete slacker, here's what matters: Right now -- as you scroll down the screen -- you're committed to finding out how healthy your nest egg really is.

Let's ease into it by first snooping around to see how your neighbors and the rest of the nation are faring on the savings front.

A 2006 A.G. Edwards nationwide survey ranked the states in order of savings acumen, as indexed to a national average score of 100. Open a new browser and move your cursor around this map for a savings roadmap. (Looks like Mom and Dad in Kansas -- at 102.80 -- are a tad better off than the folks nearby in Nebraska.) Next, take a moment to answer a few questions with the company's "Nest Egg Score Estimator" and get a personal score.

The estimator is good for instant calculation gratification, but you'll need to spend a little more time in the metaphorical kitchen to find out whether your nest egg is cracked or adequately cushioned.

Three key savings ingredients
The three moving parts in the savings equation are 1) the amount you save, 2) how much time you have to let your money grow, and 3) the return on your investment. It's natural to obsess over the last one -- investment performance -- but you don't have to lose sleep over your stocks to turn your fortune around.

Consider this: It's not how well you do, but how much you save, that really matters -- particularly if you don't have a monster portfolio.

Here's proof: The easy way to earn a 10% return on a $50,000 portfolio is to sock away an additional $416 a month -- and that's without your investments budging an inch. Now consider what you could do with $50 a month earning a so-so 6% average annual return. In two decades, you'd have $50,000.

But are you really saving enough? You've likely heard the 10% savings rule of thumb. In your 20s, saving 10% of your annual income is a great place to start. Late bloomers need to be more aggressive savers. If you're in your 30s and are just starting to salt away money for retirement, aim to save 15% of your income annually. For every decade that you've delayed investing, sock away an additional 5% of your pay. So a 40-year-old should shoot for 20% savings rate. A 50-year-old will want to save 25% of their income, and so on ...

Our resident retirement expert Robert Brokamp walks readers through the math -- kindly spelling out all assumptions we should use to fill in the blanks -- to illustrate how an additional $100 savings a month today will buy you $168 to $338 a month more in spending power in the future.

How much do you need for retirement?
The average retiree lives on 74% to 83% of their pre-retirement income. But remember, those are averages. There are plenty of people living on less, and plenty who find that their expenses actually go up when they leave the 9-to-5 world.

Blindly relying on conventional wisdom can cost you dearly when you can least afford it. There are a lot of variables that go into the retirement affordability equation. Will you still have a mortgage to pay? Will you travel a lot more? Will you work part-time? Then there's the grim, not-so-fun stuff, like how long you'll live, and whether you'll have unexpected medical expenses to pay.

Stop wondering whether the contents of your piggy bank will provide enough for your future. Let's find out for sure.

Get to the number-crunching
The only way to see if you will have the retirement of your dreams is to crunch your numbers. (Sorry for all the italics, but, hey, this is all about you.)

Statistics show that two-thirds of us have never attempted to calculate how much we'll need for a comfortable retirement. A shocking 15% haven't even saved a dime for that fateful day.

You're about to propel yourself to the head of the class by simply doing a few calculations. Plenty of calculators online will do the number-crunching for you (no heavy lifting required!), including ones in financial programs like Intuit's (Nasdaq: INTU  ) Quicken and Microsoft's (Nasdaq: MSFT  ) Money.

Check out the "Am I saving enough?" calculator here on Fool.com. Then build a margin of error into your savings plan. That way, if the stock market slumps, Social Security benefits are cut, or that painting you bought at a yard sale turns out to be a Picasso, you'll be ready. There's a more sophisticated financial-planning tool available as part of the Rule Your Retirement service (check it out for free for 30 days). It even saves your data and allows you to run various "what if" scenarios.

Do a little savings navel-gazing now, before clicking off to check your email. Trust me, you'll sleep better tonight knowing exactly where you stand.

Dayana Yochim's typical lunch hour is spent fiddling with financial calculators. She is the co-advisor for the Motley Fool Green Light service, where she and Shannon Zimmerman dish out a minimum of $450 in instant money-making or money-saving ideas each month. Like all the Fool services, you can check it out for free for 30 days. She doesn't own shares of the companies mentioned in this article. Microsoft is an Inside Value recommendation. The Fool has a disclosure policy.


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