It's time for some tough love. I want you to have a comfortable retirement, doing things that you enjoy and things you've always wanted to do. That may mean dining in some fine restaurants, traveling to the Galapagos Islands to see blue-footed boobies, taking your grandchildren to Hershey, Pa., and living in a spiffy retirement community. But judging from some statistics I recently ran across, you're in danger of a retirement that instead features dining on Salisbury steak TV dinners, traveling to the Git'n'Go down the street for a bag of chips, taking your grandchildren to the Salvation Army store with you as you shop for some new clothes, and living in your grouchy daughter's damp basement.

The facts
According to the 2005 Retirement Confidence Survey (RCS), we can be confident that many people will have gruesome retirements. Why? Here's a clue: According to a another survey, 31% of Americans would rather scrub a bathroom than plan for retirement. That's right -- if you've been putting off planning for your retirement, you're not alone.

Check out the RCS numbers below, which reflect the total savings and investments (not including the value of the primary residence) of today's workers, broken down by age groups:

Retirement Savings All 25-34 35-44 45-54 55+
Less than $25,000 52% 70% 50% 41% 39%
$25,000-$49,999 13% 12% 15% 14% 12%
$50,000-$99,999 11% 9% 14% 13% 7%
$100,000-$249,999 12% 5% 10% 17% 23%
$250,000 or more 11% 4% 10% 16% 19%

These numbers might not seem so scary, until you think them through a little. First off, remember that the numbers above ignore Social Security. That may be just as well. I've still got at least two decades until retirement. I recently received my latest statement from the Social Security Administration. The amount I can expect to receive at my full retirement age of 67 isn't much more than my current mortgage payment. My 30-year mortgage won't be finished by the time I hit the big 6-7, and my mortgage and tax payments will likely be much higher because of rising taxes. Making matters worse is the possibility that we can't be entirely sure that Social Security will be around in much the same form in our own golden years.

Pensions? Well, darn few of us have traditional pensions anymore. Check out this snippet from an Associated Press article: "In 1985, 89% of Fortune 100 companies offered traditional pension plans, but that had fallen to 51% by 2004, according to Watson Wyatt Worldwide, a human resources consulting firm. Some 11% of the plans in the Fortune 1000 were frozen or terminated for new employees, up from 5% in 2001."

So let's rely instead on those factors that are under our control -- our savings and investments.

What the facts mean
Let's say you're a typical American 40-year-old worker. According to the table, there's about a 50% chance that your savings and investments total less than $25,000. Let's be generous and assume you have $20,000 socked away. You've also got about 25 to 30 years until you retire. How will that money grow for you? Check it out -- let's assume you earn the market's average long-term return of 10%:

  • 2006 (age 40): $20,000
  • 2016 (age 50): $51,875
  • 2026 (age 60): $135,550
  • 2036 (age 70): $349,000

Now let's use some information I've gleaned from our Rule Your Retirement newsletter: In order to make your nest egg last, you should conservatively plan to withdraw about 4% of it per year in retirement, to live on. So 4% of $349,000 is almost $14,000. That's nearly $1,200 per month. Will that be enough? Well, according to an inflation calculator I checked, over the past 30 years, what cost $1 initially ended up costing about $3.75. Let's say that prices only triple over the next 30 years. If so, your $14,000 in 2036 will buy you what $4,700 will buy you today. That's less than $400 per month.

Another way to look at it is to realize that the 4% withdrawal rate should include inflation-indexed increases, so if you're taking out $14,000 in the first year and inflation that year is 3%, the next withdrawal will be 1.03 times $14,000, or $14,420. Can you see how quickly your money will get depleted this way? (Note that you can withdraw more each year. If you're taking out 5% annually over 30 years, you have roughly a 3-in-4 chance of not running out of money, but that's much less of a sure thing.)

If you want to live off the current equivalent of $50,000 per year in 30 years, you might estimate that you'll have to be able to withdraw $150,000 yearly. If that's 4% of your nest egg, it will need to be . $3.75 million.

It's better ... and worse
Of course, this is just one hypothetical example, and there are lots of other concerns that make matters both better and worse. For example:

  • Many of us are well past 40 and still have less than $25,000 socked away. Heck, 39% of those 55 and older are in that camp.
  • But remember that we can all make the situation better by investing regularly. A rule of thumb is to save and invest 10% of your income, but more is better.
  • Many of us will have home equity to tap, if need be, in retirement. We'll also likely be receiving at least something from Social Security, and perhaps even a little from a pension.
  • Keep in mind that the stock market's return over the next 10, 20, and 30 years isn't likely to match the historic average of 10%. It may well be higher -- or lower, meaning you can end up with a considerably smaller nest egg than you expected. It's similar with individual stocks. Look at Intel (NASDAQ:INTC) as an example. Between March 1996 and March 2006, its stock advanced roughly 200%. But over the decade starting three years earlier, between March 1993 and March 2003, its stock rose about 365%.
  • Don't assume that your stash of company stock will save you. Having too much of your financial future resting on the fate of one company is risky. If you'd acquired shares of stock in the Gap (NYSE:GPS) five years ago, for example, you'd be underwater by more than 20% today. Investors in Coca-Cola (NYSE:KO) haven't fared much better, leaving investors who've hung on for the past 10 years not much richer than when they started. This doesn't mean these companies won't ultimately surge and reward us, but if anyone was counting on them to do so by a certain time, they've likely been disappointed.

There's hope!
Fortunately, all isn't lost. You needn't end up with a gruesome retirement. Here's the tough love part. If you take some action now, you can begin to set yourself up for a more comfortable retirement. So get going! Forget about scrubbing that bathroom for a while, and tend to your retirement instead. You'll thank yourself for it later.

The retirement guidance source that I refer to most often is Robert Brokamp's Rule Your Retirementnewsletter. You can, and should, try it for free for a whole month. Doing so will permit you to peek at all the past issues, which feature a host of "Success Stories," profiling people who retired early and are willing to share their strategies.

Here's a sampling of some very useful articles from past issues:

  • In the January 2006 issue, Robert tackled real-life asset allocation.
  • In the May 2005 issue, readers were taught how to withdraw money prudently in retirement, in order to make it last.
  • The October 2005 issue delved into dividends and offered some recommended dividend payers. A free trial of the newsletter will let you see all the recommendations, but some other companies with current significant dividend yields include AltriaGroup (NYSE:MO) and Sara Lee (NYSE:SLE). Altria's dividend yield hovers around 4.4%, having grown an average of about 9% per year over the past decade, while Sara Lee's yield is around 4.5%, with the dividend whose annual growth averages 8% over the past decade.
  • The December 2005 issue covered real estate investment trusts (REITs) in detail, recommending promising investments, such as Host Marriott (NYSE:HMT).

So go ahead and grab a free trial of Rule Your Retirement -- I think you'll like what you see. And if not, you'll have lost nothing.

Here's to big profits in your future!

(Consider forwarding this article to anyone whose retirement you care about. Just click on the "Email this Page" link near the bottom of the page.)

Gap and Coca-Cola are Inside Value picks, and Gap is also a Stock Advisor pick. Sara Lee is an Income Investor pick.

Selena Maranjian 's favorite discussion boards include Book Club , Eclectic Library, Television Banter, and Card & Board Games. She owns shares of Coca-Cola. For more about Selena, viewher bio and her profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.