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Plan, don't fantasize to retire with $1-million

Last month, a report predicted that aging baby boomers will suck the nation's retirement trust fund dry in 33 years _ even before the last boomer trades work for leisure.

"People who believe in UFOs are the only ones who believe Social Security will be there for them," says Deborah Steelman, a Washington lawyer and former chairwoman of an independent advisory council on Social Security.

Congress is expected to save Social Security from going bust. But there are still very real questions about just how useful the federal retirement program will be in the next century.

A Social Security fix won't be quick or easy, for political and other reasons. And any fix is sure to require workers to pay more in payroll taxes now, or take less in benefits later _ most likely both. For some middle-class and affluent retirees, benefits could disappear.

So baby boomers are left with the question of how much more they should save to protect themselves from possible future cuts in their Social Security safety net. The answers are in the mind-boggling millions, thanks to social "insecurity," shrinking corporate pensions and inflation.

Because of corporate mergers, downsizing and job changes, many boomers can't count on the generous pensions that paid for their parents' retirements. And they shouldn't count on the windfall their parents got by selling the family home. Some economists predict housing prices will plummet when millions of boomers try to trade the family home for a retirement home.

Many people know this. That's why they're stashing part of their pretax income each year in their companies' 401(k) retirement savings plans.

How much? On average, about 6 percent of their annual income, or $5,000, according to the 1996 Equitable Nest Egg Survey, an annual survey of boomer savings. But that's $1,000 less than they did in each of the past two years.

Many are in for a big shock: They're probably not even saving enough to accumulate what they need to maintain their current standard of living in retirement _ even if Social Security is NOT cut _ much less live the life of leisure most say they want.

If they start at age 45, they should be saving 24 percent of their income to maintain their standard of living in retirement, with full Social Security.

Without Social Security benefits, boomers would be in even bigger trouble.

Under that scenario, boomers would need to save closer to 40 percent annually if they're in their mid-40s, earning about $50,000 a year and just beginning to save _ like Robin Meadows.

"I figure we'll have to work forever," says Meadows, a 44-year-old Michigan real estate agent married to Peter Laboda, a 50-year-old chef. "We'll never be able to save enough."

She's probably right, but she's not alone.

Many workers, and their employers, have to do a lot more _ and quickly _ if they are ever going to be able to stop working, Steelman and other financial experts say.

"Boomers will work longer, pay more into Social Security and get less" unless changes are made, Steelman says.

The oldest of the 76-million boomers turned 50 this year; the youngest turned 32.

While their elders are getting by with a nest egg of $150,000, according to the Equitable Survey, boomers will need more than $1-million to do as well, even with Social Security.

"The situation is ominous," says Karen Field, senior manager of KPMG Peat Marwick, the national tax and accounting firm. "Most people can't even save 10 percent of their income. But they can't afford not to. Employers can help by doing more."

Her advice: Save as much as you possibly can and then more. Lobby your employer to help by providing a top-notch 401(k) retirement savings plan that matches part of your savings with a company contribution and allows you to save as much as possible before taxes.

This year, the pretax limit is $9,500 a year, unless your plan sets a lower limit _ for example, 10 percent of your income. Limits vary by plan because of other pension and profit-sharing contribution limits and rules.

Many employers already help in a big way, Field says.

A recent KPMG survey found that more than 50 percent of company 401(k) plans match employee savings with corporate contributions of 50 percent or more, up to a certain level, typically 3 to 6 percent of pretax income. Some companies match employee savings dollar for dollar.

Financial planners also advise people to count on what they save in their tax-deferred retirement savings for the bulk of their retirement nest egg.

"I'd no more tell people to count on Social Security than I would tell them to count on food stamps," says Bert Whitehead, a financial planner in Detroit. "Social Security is a Ponzi scheme, and . . . it's bound to end as we know it."

Contrary to popular opinion, Social Security is not a huge savings account waiting for retirees to write checks against it. For 60 years, it has been a pay-as-you-go business. Today's workers pay the benefits of today's retirees, and because workers outnumber retirees, Social Security is racking up nice surpluses. But as more boomers retire, those surpluses will disappear, most likely by 2025.

To prevent such a shortfall, some want to leverage extra payroll taxes now to pay future retiree benefits. Two options are under consideration: Allow the government to invest part of payroll taxes in stocks, or allow workers on their own to invest part of their payroll taxes in stocks.

Currently, Social Security invests its surplus in government bonds.

Tying Social Security to stocks is risky, critics say, because stock prices could be down when millions of boomers are ready to claim benefits.

The sooner you start to save, the less you have to save, thanks to the value of compounding and the power of stocks, which have in the past 25 years averaged a healthy 10 percent annual return.

For example: To have $100,000 by age 65, a 35-year-old would need to invest $82 a month, or $30,000, over 30 years.

A 50-year-old, meanwhile, would have to invest $574 a month, or $69,000 over 15 years, to have a $100,000 nest egg.

But no matter your age, the first step is to start saving.

How much you'll need depends on how well off you want to be, how much you've already saved, how long you have until retirement, and whether your employer matches part of your savings.

An entire industry of magazines, books, computer software, online services, mutual fund companies and financial planners exists simply to help you figure that out.

But be prepared. How much you should save _ even if you end up with full Social Security benefits _ may shock you.

Typically, if you're 30 years old, married, want to retire at 66 and maintain your current standard of living, you'll need to accumulate $2-million, suggests Alan Cohen, a financial planner in Bala Cynwyd, Pa.

"Real panic sets in when you tell people how much they need to save, because they know they can't do it," says Trip Bosarth, an investment adviser for McDonald & Co. in Birmingham, Mich.

Bosarth wants Congress to cut income taxes so workers have more to save, increase the amount they can save in tax-deferred accounts, and revive the use of individual retirement accounts by making more people eligible to deduct the $2,000 they can invest annually.

"For many people, there's just not enough time to save what they need to," Bosarth adds. "And every day that goes by without Congress and employers doing something to help, the problem gets worse."

Retirement wave

In 2012, the 76-million baby boomers start to retire. Under current conditions, the government estimates, Social Security benefits will exceed the income pool after 2019, and the surplus will ge gone - and the fund in the red - by 2029.