Ah, retirement! No matter how we envision our own golden years, it seems we’re a nation of optimists.

Seventy percent of workers feel very or somewhat confident that they’ll have enough money to afford a comfortable life in retirement, according to the latest annual retirement survey by Employee Benefit Research Institute, or EBRI.

Unfortunately, rosy expectations don’t square with reality. Sure, we can envision languid days dictated by nothing more complex than whim and desire. But the truth is, rigid weeks punctuated by commuter schedules, project deadlines and the buzz of alarm clocks may hit closer to reality.

By the numbers: The nation’s workers say …
  • 70 percent feel very or somewhat confident that they’ll have enough money to afford a comfortable life in retirement.
  • 66 percent report that either they or their spouse have saved something for retirement.
  • 68 percent are “not at all” or “not too” confident that Social Security will continue to pay.
  • 13 percent have no idea how much money they’ll need for retirement.
  • 49 percent of those who have not saved are nevertheless confident about a comfortable retirement.
  • 49 percent of workers of all ages have less than $25,000 in retirement savings.
Source: EBRI’s 2007 Retirement Confidence Survey

More than half of all individuals have no idea how much money they’ll need for retirement. Many intend to rely on government and employer programs that may not adequately cover future expenses. Even optimists are unprepared. A full 49 percent of those workers who are confident about retirement haven’t saved anything for life after work.

“There’s a very large disconnect,” says Craig Copeland, a co-author of EBRI’s annual retirement survey. “They still think there will be money there for them.”

Why are we so optimistic? Part of the problem stems with those who’ve already retired.

“Workers see them and think they’re fine,” says Copeland. “But if you look at the group of retirees who are 65 and older, nearly two-thirds of them rely almost exclusively on Social Security for their income. Social Security benefits provide 80 percent of income for 60 percent of today’s retirees, with average monthly Social Security payout running just over $1,000.

But will the program continue to cover the bulk of income for future generations? And if so, will it be sufficient to meet their expenses? It’s impossible to say with certainty, of course, but 61 percent of workers are “not at all” or “not too” confident that Social Security will continue to pay benefits that are of equal value to payouts today.

Their skepticism is not unfounded. Social Security is undergoing significant changes sure to impact how well people fare in retirement.

Changes afoot in Social Security benefits

Withholding for Medicare Part B, which is automatically deducted from Social Security benefits, now runs more than $93 a month and is expected to grow. Meanwhile, the amount of Social Security income not subject to taxes hasn’t been indexed for inflation. As income grows over time — and Social Security benefits increase with it — “more Social Security income will be subject to tax in the future,” says Mark Luscombe, principal tax analyst at CCH, the tax law publisher.

And, individuals must wait longer than ever before — up to age 67 for those born in 1960 or later — before they’re eligible to receive full benefits. That’s sure to be an important consideration for anyone planning to retire early. Yet, only 18 percent of working respondents to the EBRI study knew the correct age at which they’ll be able to receive full benefits.

Demise of pensions

Meanwhile, the other “safety net” — old-fashioned pensions — is likely not to provide the kind of financial help it has in the past. In 1985, 91 percent of major U.S. employers offered pension benefits. Today, 61 percent do, according to Hewitt Associates, a workplace research and consulting group.

Pensions are being replaced with what the professionals call defined-contribution plans. Most commonly, these include 401(k)s, 403(b)s and 457s. All are funded primarily by employee contributions, and they may or may not have company matches.

The upshot: It’s become more important for employees to plan for and take control of their own retirement.

The good news is that most workers — 66 percent — report that at one time or another, either they or their spouses have saved something for retirement. But again, they haven’t done enough. Nearly five out of 10 workers of all ages has less than $25,000 in retirement savings and investments. And nearly as many say they’ll be able to pay for retirement with an income that’s less than 70 percent of their current working income.

“We’re great at fooling ourselves,” says Dick Bellmer, chairman of the National Association of Professional Financial Administrators, a group for fee-only planners. “We say we can live on $25,000 a year in retirement when we’re currently making $100,000.”

Magic formula

Experts such as Bellmer recommend individuals plan on spending at least 70 percent of pre-retirement income. But others, such as retirees, place that target much higher. According to the EBRI study, 55 percent of retirees today rely on income that’s equivalent to 95 percent or more of their working-day income. Meanwhile, 39 percent of retirees said they found their expenses increased, rather than dropped, after they quit working, according to a recent poll by Fidelity Research Institute.

Haven’t a clue how much you need? You’re in good company. A majority of workers — 57 percent — still haven’t done the necessary calculations or planning to find out. And three-quarters of this group admit they can only “guess” how much is enough.

This lack of preparation, coupled with wishful thinking, is alarming plenty of experts, such as Matthew Greenwald, principal of Greenwald & Associates, a market research firm specializing in retirement.

“Yogi Berra once said, ‘If you don’t know where you’re going, you’ll wind up somewhere else,’ ” says Greenwald. “People are putting themselves at deep risk, with deep consequences for themselves and their families by not knowing how much they’ll need for a period of time that could last as long as 40 years.”

To be sure, crafting a retirement plan is daunting. “It’s very hard for people to think long-term in terms of what they’ll need. They forget about things like inflation.”

But it’s not impossible.

Online calculators, such as the one on the Social Security Administration Web site, can help wage earners determine how much their benefits will be and how much they need to save for the retirement of their dreams.

The good news is there’s lots of incentive and help to save. Employers are stepping up plans to automatically enroll employees in 401(k)s or other retirement plans. Financial products, such as the so-called lifestyle or age-targeted mutual funds, can make it simpler to choose investments that are designed to meet retirement goals.

At the same time, more companies are offering free financial-planning education and investment guidance to help individuals take charge of their retirement savings.

What is the best thing you can do? Pay attention to your retirement. Make decisions today about how you spend, save and invest that will impact what you have tomorrow.

Finally, don’t get so overwhelmed that you do nothing. Sure, retirement planning is vital, but if you let yourself be daunted by numbers and financial lingo you don’t understand, you’ll do yourself much harm. Instead, start saving now, even if it’s a little bit. Stick to it, and be patient.

“One of the biggest mistakes people make is they’re so overwhelmed they do nothing. They look at their number and think, ‘I can’t ever save that,’ so they do nothing,” says Bellmer. “But it’s like that old saying: ‘How do you eat an elephant? One bite at a time.'”

Read: “5 steps to figuring out your ‘big number’

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