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The Numbers Are In and They Don't Look Good

According to the latest Retirement Confidence Survey, nearly 60% of American workers report they've never attempted to calculate their savings needs for retirement. Of the workers who have calculated their savings, 75% report their assets total less than $10,000.

You can't retire on that!
A $10,000 nest egg won't last the average retiree 10 months -- and with the average retirement getting longer and longer, that statistic is meant to scare you. After all, not having a plan is the fastest, easiest, and surest way to a disastrous retirement.

You need a plan -- now. As we've said before, when solid and profitable companies such as Tribune (NYSE: TRB  ) , Sprint Nextel (NYSE: S  ) , and Alcoa (NYSE: AA  ) are freezing pension plans, it's time to get serious.

Regardless of how distant your retirement may be, there is just one guarantee: It can only be what you make it.

Know your song before you start singing
But that raises the question: How much will you need? Clearly, there's no one-size-fits-all answer, as no two retirement incomes will look alike.

So whether you've got two years or 20, it's imperative to map out your finances now so you know what you'll need to get you to -- and through -- retirement. If you decide to work part-time in retirement, can you retire earlier? Or how about if you start saving an extra $200 a month now -- what will that mean in the long term? If you don't run your numbers, you won't know if you're headed for retirement wows or retirement woes.

Run the numbers
Let's look at two hypothetical retirees, Roy and Randy, using the DirectAdvice planning tool available from Motley Fool Rule Your Retirement. (Current subscribers can access the tool here; a 30-day trial will give non-subscribers free access.) Both Roy and Randy want to retire at age 65 on an annual retirement income of $50,000. And both men plan to live until 95.

First up:Roy, age 40

Current Income $60,000
Social Security $368/month (one-fourth of his estimate benefit)
Pension None
Retirement Savings 401(k) totaling $75,000

Savings Rate

10% (no match)
*Sample data computed in DirectAdvice planning tool.

The dirt on Roy: The DirectAdvice calculator indicates that Roy will run out of money in 2043 at age 77. To reach his goal, he'll need to save at least an additional $1,077 a month.

Roy's options: Roy can extend his portfolio's estimated longevity 13 years by contributing $2,000 a year to an IRA; retiring at age 67; and enhancing his "human capital" by earning raises to keep him ahead of inflation. Contributing 10% of an ever-increasing salary adds several years to any nest egg's life expectancy.

Roy doesn't think there will be much in the Social Security kitty when he retires -- that's a different topic for a different time -- so he assumes he'll receive just 25% of what he's estimated to get. If he ends up receiving half the estimated amount, Roy's portfolio -- based on his current plan -- will last until 2047. And if, by some financial miracle, he receives his entire estimated benefit, his portfolio will last to 2058, when he's age 92.

Next up:Randy, age 50

Current Income $60,000
Social Security $1,470/month
Pension $1,000/month
Retirement Savings 401(k) totaling $100,000, traditional IRA totaling $50,000, Roth IRA totaling $10,000, and taxable account totaling $10,000
Savings Rate

6% of salary (employer matches 50%)

*Sample data computed in DirectAdvice planning tool.

The dirt on Randy: Randy will deplete his savings in 2036 at the age of 80, leaving him to live on his Social Security and non-inflation-adjusted pension. For his money to last until 2051, he'll need to start saving about an additional $900 a month.

Randy's options: If Randy decides to max out his IRA every year, including catch-up contributions, he will increase his portfolio's longevity seven years. Delaying retirement by one year will extend his portfolio until 2051, just one year short of his targeted 30 years.

Randy will receive almost $30,000 in his first year in retirement from Social Security and his pension. As long as he has faith in both of those sources, he can be a bit more aggressive with his portfolio. However, he'll have to keep in mind that his pension doesn't adjust for inflation, so its purchasing power will be cut in half every 15 to 20 years.

Of course, none of this takes into account Roy or Randy's actual investments. Fool retirement guru Robert Brokamp has called dividend payers the right stocks for retirement, and who am I to disagree? Loading up IRAs or taxable accounts with financially stable high-yielders such as Bank of America (NYSE: BAC  ) (which sports a 4.3% yield) or Wachovia (NYSE: WB  ) (which stacks up at 4% after a recent 10% dividend hike) will help bring in a little extra income during retirement -- without any hassle!

How'd I do that?
Are you more Roy than Randy? You should really crunch the numbers to find out. Your retirement depends on it.

For help with the number-crunching, check out the DirectAdvice tool, which comes free with a 30-day trial subscription to Rule Your Retirement. The DA planning tool is just part of the comprehensive retirement service that helps you assess all aspects of your financial future, from savings to estate planning to asset allocation. Follow this link to get going.

Fool editor Jill Ralph does not own shares of any stocks mentioned in this article. Bank of America is an Income Investor recommendation. The Fool has a disclosure policy.

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