You Think That's All You'll Need to Retire?

After years of writing about personal finance, few things surprise me. But when the 2009 Retirement Confidence Survey came out earlier this year, I saw something that left me dumbfounded.

What wasn't all that surprising to me was that only 54% of Americans surveyed were somewhat or very confident that they'll have enough money on which to live comfortably in retirement, down from 61% just a year ago and 70% two years ago. It was a little surprising that while 75% said they had saved for retirement, only 12% had saved more than $250,000 (and among those ages 55 or older, only 26%).

Here's what shocked me, though: When asked how much money they'll need for retirement, the sum that got the most support was "less than $250,000." In fact, 70% thought that they'll need less than $1 million. Let's think about that a little, shall we?

Running numbers
Let's be generous and assume that you retire with a nest egg of $600,000. That would give you only a $24,000 annual payout, if you withdraw the 4% recommended in our Rule Your Retirement newsletter (adjusting it for inflation each year). You'd better be expecting considerable income from other sources, such as Social Security or a pension, because even today, it's hard to live on $24,000. And with Fidelity estimating that the average retiring couple today will need around $240,000 just for health-care expenses, you're not leaving yourself much wiggle room if something goes wrong.

Using that 4% figure, if you want $50,000 in annual income in retirement, you should aim for a nest egg of around $1.25 million. (Just multiply your desired income by 25 to get the needed nest-egg size.) You may be able to get there by working a few more years, or just cranking up your savings. Once you approach retirement, you might spend some of your nest egg to buy yourself a pension.

Instead of or in addition to that, you might generate income for yourself via dividend-paying stocks -- ideally, ones you expect to grow in value, giving you a one-two punch. Check out this possible income scenario, for example, if you had $100,000 divided among eight stocks:

Source: Yahoo! Finance.

Not bad, eh? To see what you'd get if your invested nest egg were $400,000, just multiply the total above by four, and you'll be looking at an annual payout of more than $22,400.

Good news
Fortunately, not all of us will need $1.25 million with which to retire. We may have pensions coming to us, or other expected income. And who knows -- by the time we retire, health-care costs might have been brought under control. But I hope it's clear to you that for most of us, $250,000 isn't going to go very far in retirement.

To give you an idea of what $250,000 will get you in a lifetime income annuity, I recently ran the numbers on an online calculator for a 65-year-old woman and got monthly income estimates around $1,500, which would come to $18,000 per year. But that amount can vary greatly depending on which options you choose, such as only taking the income for a set number of years, or leaving some money to heirs.

So don't be a victim of retirement killers in this brutal environment, and remember that it's never too late to salvage your retirement. Be smart about your retirement planning and investing and you'll have a much more enjoyable retirement.

Need help saving more? Get Chuck Saletta's advice on how to make a million dollars.