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Brace Yourself for a Miserable Retirement

Pick a number between 1 and 3,000,000. Any number. Got one?

That pretty much sums up the method that a startling number of people use to "plan" for retirement. Close to half of workers guess at how much money they will need, according to the 2008 Retirement Confidence Survey.

Watch me pull a rabbit out of this savings account
Here's the problem with the guessing method of retirement planning: If you don't know how much you'll need, you're probably not going to save enough. After all, $250,000 sounds like a lot of money. About 25% of workers surveyed said they will need to have saved that amount or less by retirement.

Unfortunately, that's not very realistic. If you're a 40-year-old with plans to retire in 27 years, by the time you retire, inflation will have seriously eroded the purchasing power of your cool quarter-million. It will be worth only about $112,500.

If you heed the advice of the planning gurus at the Fool's Rule Your Retirement newsletter service, you can comfortably withdraw 4% of that money each year. That means you'll have to somehow live on $4,500 per year in retirement. I'll bet saving up to afford instant coffee and ramen noodles isn't the retirement of your dreams.

Uncle Sam to the rescue?
I don't need to remind you that the era of companies keeping their workers comfortable and secure in retirement has ended.

That leads me to the second problem. Another leg of our retirement stool may be pretty wobbly, too, because Uncle Sam's not looking out for you, either. Social Security was never intended to be any retiree's single source of income, but even the current program may seem generous when compared with future benefits. While the politically minded debate solutions to the demographic crunch that's squeezing the program, there's one certainty: Social Security will change. Odds remain high that it will not change in your favor if you're relatively young.

Guess again
Then there's a third problem. We know we must save something, even if it's a guess and we have our eye set on putting aside $250,000 or whatever random number we've plucked out of the air. But we're not even meeting those goals.

Half of the surveyed workers reported that the value of their household's savings and investments (excluding their homes and any pension plans) is less than $25,000. That's not going to be enough to save most people from a pretty spare existence in retirement.

Save yourself
This all sounds very dismal, but I wouldn't have dragged you through the bad news without giving you some very good news. You can avoid this dreadful future.

Get the guesswork out of your retirement plan by calculating the amount of money you'll need in retirement. You don't have to be a math whiz. You can use any of the Fool's bevy of calculators to get started, or try this pretty simple calculator to find out whether you're on track. After testing a few methods, you might want to try your hand at figuring out the number yourself.

Uncle Sam to the rescue!
Don't panic if your retirement goal seems like more money than you'll ever see in a lifetime. You've got a few powerful tools to help you get there. The first is an array of tax-advantaged retirement accounts that help you quickly build savings.

The second tool comes from the stock market's prospects for long-term growth. You can tap into its potential power by buying into a simple index fund or by purchasing individual stocks. Depending on where you stash your retirement money, the investing world can be your oyster.

Check out, for example, some of best-performing stocks that the Motley Fool CAPS community has picked as likely candidates to outperform the market. You may find names you've never seen, like CE Franklin (AMEX: CFK  ) and Graham (AMEX: GHM  ) -- two companies that work with energy producers -- or wireless infrastructure provider Airvana (Nasdaq: AIRV  ) .

You're in the right place to get plenty of advice for how to invest your retirement money. You'll find comprehensive advice, from investment ideas to travel tips, from the Rule Your Retirement newsletter service. Peruse it free for 30 days, and take a look at these other Foolish thoughts for:

Fool contributor Mary Dalrymple does not own stock in any company mentioned in this article. She welcomes your feedback. The Motley Fool's disclosure policy is worth a million bucks.


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