The myth of $1,000,000 retirement

Social Security's in trouble. Pensions are biting the dust. America's savings rate is abominable. And every time you turn around, some pundit is warning that if you haven't already put aside some vast sum -- the number changes, but it's always immense -- then you have no hope of ever retiring.

Feel like giving up? Don't.

The truth is, nobody knows exactly how much you, or anybody else, is going to need for retirement. You may need a million bucks, or a lot less, or a lot more. The "right" sum will depend on too many factors, including:

* your lifestyle now -- and in the future

* how long you'll live

* how your health holds up

* what kind of returns your investments earn

* what happens with inflation

* what twists and turns the economy throws at you

* what twists and turns your life throws at you

…to name just a few.

The studies that purport to show Americans are doing a lousy job of saving for retirement have to make so many assumptions about the future that their conclusions must be seen for what they are: educated guesses. (The same must be said about all the other studies that purport to show Americans are doing OK when it comes to saving for their golden years. Nobody's got a crystal ball.)

That doesn't mean you're off the hook. The more you save now and the better decisions you make about investing, the more choices you're likely to have later -- about when to retire, how you'll live, how much (if anything) you'll leave your kids.

If you haven't already, spend a few minutes with MSN's Retirement Planner to get a ballpark idea of how far your current savings plan will get you.

You may be pleasantly surprised -- or horribly depressed. Even if the results are grisly, though, don't let the doom-and-gloomers talk you into the notion that you'll never have enough to retire, or that you'll have to settle for some pinched, strained half-life at the end of your days.

For one thing, money isn't everything, not before retirement and certainly not after it.

For another, you may have more going for you than you think. Consider:
Social Security will probably survive
A lot has been written about the impending demographic crunch that will cause Social Security to start running in the red in a few decades. I've even contributed to some of the hand-wringing about the program's future. But whatever Congress eventually decides to do, Social Security itself is unlikely to disappear, and it probably will continue to provide at least some benefit for most working folks. Currently, the program replaces 30% to 40% of most people's income; even if that percentage declines somewhat, it will still help.

The scenario may be different for high earners. Currently, the more you make, the less of your income Social Security is designed to replace. Congress may well opt to cut benefits even further for the high-bracket crowd in order to preserve more for lower-paid workers, so you might not want to count on getting much, if any, benefit.

Now, the younger you are, the more skeptical you're likely to be about Social Security's future. But there's a silver lining here. Even the smallest amount you put away for retirement will have plenty of time to grow, and grow big, so that you'll be in a great position to provide for yourself if Social Security doesn't. Here's an example: a 42-year-old who puts away $1,000 today can expect that sum to grow to about $7,000 by the time she hits full retirement age at 67, assuming 8% average annual returns. A 22-year-old who makes the same investment would have nearly $32,000 by the same age. So take advantage of the power of compounding, and start saving now.
You'll probably spend less as you age
Most retirees find their expenses decline once they quit working for a variety of reasons. Their income tax bracket may drop. Work-related expenses like commuting shrink, as do (typically) contributions to retirement funds. And they're certainly no longer shelling out for payroll taxes, which consume 7.65% of the typical worker's paycheck.

But other expenses often decline as well.

Bernicke discovered that, far from increasing at the rate of inflation, Americans' spending actually drops fairly precipitously as they age, to the point where folks over 75 spend about half the amount middle-aged people do. He believes this drop is voluntary and tied to aging itself, since household wealth continues to climb. So your retirement savings could last longer than you think. Also:
You probably won't make it to 100
Much has been made of Americans' increasing longevity and the risk it poses to retirement funds. The longer you live, after all, the longer your money has to stretch. But most of us aren't going to be centenarians, or even come close.

If you have good health and a family history of long-livers, you might make it. Otherwise, 85 or 90 is reasonable estimate.

MSN's Life Expectancy Calculator can help you make your best guess.
You'll probably have some flexibility
If you get close to retirement and it looks like you're falling short, you may be able to work a while longer or get a part-time job in retirement. If you're a homeowner, you could tap your equity, either by moving to a smaller place or taking out a reverse mortgage. If the kids are gone or the mortgage is paid off in those final working years, you may be able to boost your retirement kitty considerably before you cross the finish line.

Or you may discover you're willing to live more cheaply than you once thought, just to be able to call your time your own.

If you're still feeling tense about retirement, then channel that feeling into action:

If you don't think you're saving enough, find a way to eke out a little more. Bump your 401(k) contribution up 1% and resolve to bump it up again next quarter or next time you get a raise. Or, if that's not an option, transfer a few bucks a week into an IRA and put the contributions on automatic so they're whisked out of your paycheck or bank account without your having to think about it. Every little bit really will help. Just keep at it.

Do the best you can, try to roll with the punches, and realize that nobody -- not you, not me, not the pundits -- really knows what the future will bring.