It's time for some tough love. After all, I want you to have a comfortable retirement doing things that you enjoy and have always desired.

Dine in fine restaurants, travel to the Galapagos Islands to see blue-footed boobies, take your grandchildren to Hershey, Pa., to eat chocolate to their hearts' content -- then come home to your spiffy retirement community.

But, judging from startling statistics, you are in danger of a retirement that's quite the opposite. Picture gnawing on Salisbury steak microwave dinners, taking a bus down to the Git'n'Go for a bag of chips, and bringing your grandchildren to the Salvation Army so you can shop for "new" clothes -- all while living in a relative's moldy basement.

The facts
According to the 2006 Retirement Confidence Survey (RCS), many Americans will have gruesome retirements. In a separate survey, 31% of us would rather scrub a bathroom than plan for retirement.

Rest assured: If you've been putting off planning for your retirement, you're not alone. I can't speak for the scrubbing thing.

Check out the numbers from the RCS. They reflect the total savings and investments (not including the value of the primary residence) of today's workers, by age group:

Retirement Savings

All Ages





Less than $25,000
























$250,000 or more






Source: Retirement Confidence Survey, April 2006.

These statistics don't include Social Security payouts. Maybe there's a reason for that. I have at least two decades until retirement. My latest statement from the Social Security Administration informed me that the amount I can expect to receive at my full retirement age, 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, it's possible that I -- no, all of us -- can't be entirely sure that in our golden years Social Security will exist as it does now.

Then there are pensions to consider. In truth, darn few of us have traditional pensions anymore. An Associated Press article highlighted the issue:

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.

Companies that have recently frozen all or part of their pension plans (or are slated to do so) include Citigroup, Verizon (NYSE: VZ), IBM (NYSE: IBM), and General Motors (NYSE: GM).

What the facts mean
It's best to rely on factors that are under our control: our savings and investments.

According to the table above, if you are a typical 40-year-old working American, there's about a 50% chance that your savings and investments total less than $25,000. Let's be generous and assume that you have $20,000 socked away, and that you have about 25 to 30 years until you retire. How will that money grow for you? Well, here's what happens when we assume that you earn the market's average long-term return of 10%:

  • 2007 (age 40): $20,000
  • 2017 (age 50): $51,875
  • 2027 (age 60): $135,550
  • 2037 (age 70): $349,000

Now, let's use some information from the Fool's Rule Your Retirement newsletter service: To make that nest egg last, you should plan conservatively and withdraw about 4% of it per year in retirement. So, 4% of $349,000 is almost $14,000. That's about $1,200 a month. Will that be enough to live on in 2037?

According to an inflation calculator, what cost $1 30 years ago costs about $3.75 today. Assuming the same rate going forward, your $14,000 in 2038 will buy you what you can get for $4,700 today. That $1,200 a month will feel more like $400. Startling, isn't it?

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 of retirement (and inflation that year is 3%), the next withdrawal will be 1.03 times $14,000, or $14,420. Can you imagine how quickly your money will go? (Note: You can withdraw more each year. If you're taking out 5% annually over 30 years, you have roughly a 75% chance of not running out of money. But that's far from a sure thing.)

If you want to live off the current equivalent of $50,000 per year in 30 years, you can estimate that you'll have to withdraw $150,000 annually. If that's 4% of your nest egg, then that nest egg will need to be $3.75 million! Still startled?

It gets better ... and worse
This is, of course, just one (hypothetical) example. There are plenty of other concerns that can make matters better -- or worse. For instance:

  • Many of us have seen age 40 come and go, and we still have less than $25,000 socked away. Heck, 42% of Americans ages 55 and older are in that camp. 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 receive at least something from Social Security -- and perhaps even a little from a pension.
  • The stock market's return over the next 10, 20, and 30 years won't necessarily match the historical average of 10%. It could be higher. It could be lower -- meaning you can end up with a much smaller nest egg than you expected. It's similar with individual stocks.
    Look at software giant Oracle (Nasdaq: ORCL) as an example. Over the past 20 years, its stock returned roughly 10,200%, or 26% annually on a compound growth basis. Yet over just the past seven years, Oracle's overall return has been close to zero.
    The same thing has happened with Cisco. Over the past 15 years, its stock advanced about 22% per year on average. But over the past decade? Its compound annual growth rate is around 8%. This doesn't mean these are bad companies or stocks. It just demonstrates how volatile stocks can be, especially over relatively short time periods, and what can happen if you buy at inflated prices.
  • 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 acquired shares of Palm (Nasdaq: PALM) at the height of the tech bubble, for example, you have probably experienced a very painful loss, with the shares having fallen more than 90%. Many investors in Corning (NYSE: GLW) from the same period are also very disappointed.

There is hope. We promise
Fortunately, all is not lost. You needn't end up with a nightmarish retirement. Here's the "tough love" part. If you take action now, you can 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 later.

For retirement guidance, I refer most often to Robert Brokamp's Rule Your Retirement newsletter service. You can, and should, try it for free for a whole 30 days. Doing so will give you access to all the past issues, which feature, among other things, a host of "Success Stories" that profile people who retired early and are willing to share their strategies. Robert also offers recommendations of promising stocks and mutual funds.

Don't miss out anymore. Go ahead and take a free trial of Rule Your Retirement. It'll cost you nothing, there's no obligation to subscribe, and I'm sure you'll like what you see.

Here's to avoiding a gruesome retirement -- and securing a great one!

This commentary was originally published March 3, 2006. It has been updated.

Longtime contributor Selena Maranjian owns shares of no company mentioned in this article. Palm is a Motley Fool Stock Advisor recommendation. The Motley Fool is  Fools writing for Fools .