A Scary Bedtime Fable for the Future

Hi, kids. Tonight your parents are going out to the grown-up party, and I'll be baby-sitting. Once you're in your jammies (8:30 sharp!), we'll read this bedtime story that I brought with me from work: "Can America Afford Tomorrow's Retirees: Results From the EBRI-ERF Retirement Security Projection Model," in collaboration with the Milbank Memorial Fund. (There are copies for both of you, so no need to fight with your sister.)

The story is about Mommy and Daddy and their retirement! What's retirement, you ask? Retirement is like recess for grown-ups. Grown-ups save their money so that they can stop working and instead go on cruises to Alaska when they're not sitting at home waiting for you to call, which you won't do enough. No, not even to ask for a glass of water.

By the year 2030 -- when we all have rocket boots and plasma TVs are affordable -- there will be an annual shortfall of at least $45 billion between the amount retired Americans need to cover basic expenses and what they have. Just think about what you could buy with 45 billion dollars. That sure is a lot of Bratz dolls and Game Boys!

Let's read this part together: "The shortfall is currently in the $28 billion to $35 billion range, depending on whether housing equity is liquidated."

Yes, you can color in this graph. There's plenty of space between the line going up that shows what bills Mommy and Daddy and their friends will have to pay for, and that line way, way below it that shows how far Mommy's and Daddy's savings will actually go.

Hey, sweeties, turn those frowns upside down. Your parents won't have to work forever. And despite what they yell in moments of frustration, that little spat that you won in the toy aisle at Target (NYSE: TGT  ) didn't "ruin Mommy and Daddy's hope of ever being able to quit work."

Your parents have good jobs and put money in their piggy banks to save for their retirement recess. I don't want to ruin the ending for you, but you'll see that if your parents save just 5% more of their paycheck each year until they retire, they'll be OK. (I'll try to talk them into paying for some of your college education instead of keeping the cash for themselves if you promise to go right to sleep when we're done with this story.)

Mom and Dad don't have to pay for everything. Their bosses are helping out a bit right now by putting some money into their retirement pension plans (some are called "401(k)s"). Plus, the president is going to put stuff like Social Security, Medicare, and Medicaid on his credit card.

On the next page we meet the poor little matchstick girl. She hasn't met her Prince Charming, and the evil stepmother doesn't pay her very much to sweep up the chimney embers and sew ball gowns for the princesses.

Poor matchstick girl. She needs to save a lot more money -- 25% of her paycheck for the next 30 years! -- so she can afford retirement recess and things like nursing home care and home health-care costs. Even if she sells her one-room gingerbread house, she might not make up for the shortfall in her retirement income.

But let's think about fun things before I turn out the lights and leave the door opened exactly 5 1/2 inches. What are you going to do during your retirement recess? With a little planning and some help from Uncle Robert (yes, the one who wears the funny hat to all the family events), you can watch TV (the channels you want) all day long! As long as you save part of each of your allowance, and your parents don't need to borrow money from you, it'll be recess all day, every day!

Next week we'll read from The Ticking Retirement Time Bomb: What State Governments Can Do!

Sweet dreams!

Dayana Yochimhas a knack for picking bedtime stories that make children really sleepy. She recommendsThe Motley Fool's disclosure policyand a warm glass of milk. The free trial issue ofRule Your Retirementhas much better jokes, though.

This article was originally published on Dec. 8, 2004. It has been updated.

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