Will you ever be able to retire?

Many Americans aren’t even aware of the scope of the financial challenge they face. Surveys repeatedly have found that many Americans have woefully underfunded their personal retirement savings and remain largely clueless about how much more they will need to support themselves once they stop working. More than half of workers 55 and older have saved less than $50,000 toward retirement, according to an April survey by the Employee Benefits Research Institute.

The study also found that half of current workers expect to get by on 70 percent or less of their pre-retirement income. Yet among people who have already retired, two-thirds say the 70 percent level is inadequate. Nearly six in 10 workers haven’t even bothered to calculate how much they might need to live on, according to the EBRI.

How long will you live?
The biggest risk of all — that you might outlive your savings — is all but impossible to predict. Traditional defined-benefit pensions spread that "longevity" risk among a large pool of workers, using actuarial research on predicted life spans. So an investment fund supporting pensioners might have to pay more to those who lived longer than average, but it would pay less to those who died sooner than expected. With individually managed plans, that longevity risk falls fully on each retiree.

Other forces are also chipping away at the financial well-being of future retirees. Changes in Social Security benefits have eroded the security provided by the world's largest government-sponsored retirement plan, as the age at which American workers qualify for full benefits has been gradually rising. Looming deficits in Social Security funding increase the odds of further benefit cuts.

Until recently, historically low interest rates have reduced the amount of income retirees can expect to generate from their nest eggs.

“There’s no silver bullet here,” said Munnell. The solution, she says, is simple but stark: “Work longer and save more.”

Are you at risk?
The risk of coming up short in retirement depends a lot on how old you are, according to a study released this month by the Center for Retirement Research. Older workers are more likely to enjoy the security of a regular monthly check in retirement. About a third of “early boomers” — those born between 1946 and 1954 — face the risk of not being able to maintain their living standard after retirement, according to the center's latest research. For Generation Xers — born between 1965 and 1972 — roughly half are at risk of not being able to retire.

Financing your own retirement is daunting for even the most sophisticated savers and investors. For starters, it means trying to determine how much you’ll need to set aside. For those in their 20s or 30s, the exercise involves the nearly impossible task of predicting the inflation rate for the next three decades. A prolonged period of high inflation like the 1970s will shred even the most conservative plan.

Personal profiles Road to retirement Three workers discuss how they plan for the future

Then there’s the question of determining how fast you can expect your nest egg to grow. While historical returns of the stock market have averaged more than 12 percent over the past seven decades, that average hides the devastating impact of a rough patch in the financial markets, like the prolonged inflation of the 1970s or the raging bear market that followed the bursting of the Internet bubble in 2000.

For example, a worker who invested $1,000 in stocks in 1964 and retired 35 years later in 1999 would have accumulated more than $60,000, adjusted for inflation, based on the return of the Standard and Poor's 500 index. But if that same worker started saving just three years later, investing $1,000 in stocks in 1967, that nest egg would be worth about half as much in 35 years — due largely to the heavy back-to-back stock market losses just before retirement. A lot of the success of your retirement plan rests on dumb luck.

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For some workers, just setting aside the money to invest is an insurmountable hurdle. Dennis Mallum, a cement truck driver in central Illinois, began working when he was 13, washing dishes after school.

“I’ve never made enough money to put anything away,” he said. “I’ve made enough money to pay my bills, and that’s the ways it’s always been.”

His 50-hour workweek includes stints as a volunteer firefighter and emergency medical technician. Now, at 51, Mallum said he suffers from arthritis that may eventually prevent him from working.

“I hope like hell that Social Security is going to be there when I retire,” he said. “Because that’s what I’m going to have to live on.”

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