Building a Nest Egg Doesn't Come With Blueprints

A recent survey by a brokerage firm found that 58 percent of Americans contemplating retirement don't know how big a nest egg they need to assure themselves of a comfortable life in old age.

That's no surprise. What's surprising is the 42 percent who think they do know.

"Who are they? Do you know any of them?" joked economist Alicia H. Munnell, who heads Boston College's Center for Retirement Research and who has been studying retirement security for years.

Increasingly, Americans are being asked to know the unknowable. Anyone who thinks that a) there's a specific amount of savings or assets at which a comfortable retirement is assured or b) that such a figure could be calculated if it did exist, just hasn't taken a realistic look at all the variables.

Clearly, families with assets in the millions of dollars can feel reasonably confident about their futures. At the other end of the spectrum, those with little besides a house and Social Security are almost certain to face lowered standards of living in retirement. But in between, it's a conundrum.

Brokers and insurers and others who sell retirement "products" like to put firm-sounding numbers on what constitutes retirement security, but they typically do that by making assumptions, lots of them. This is not to say that these assumptions are unreasonable, but families should understand that their own situations could end up quite different.

For example, the estimates done by the pros typically assume your assets will get a certain average return, that you'll withdraw a certain percentage each year -- and that may be adjusted for inflation -- and that you'll live to something like your actuarial life expectancy, which is something in the low to mid-eighties, plus perhaps a fudge factor based on your family history and present health.

So assuming you save a certain amount, and if you get the assumed investment return, and if you don't take out too much, and if inflation doesn't take off, and if you don't get a horribly expensive disease, and if taxes don't rise too much, and if you die on schedule, you'll be okay.

This is not reassuring.

To be sure, retirees have always faced uncertainty. Even back in the good old days of memory (or maybe imagination), when many more Americans had traditional pensions, sudden changes, such as roaring inflation, sometimes wrecked retirees' plans.

But in today's world, and tomorrow's, retirees face an even greater array of uncontrollable factors. Indeed, even the experts can't offer guidance with much confidence.

For example, Munnell said her and her colleagues' research indicates that retirees likely need 70 to 80 percent of their pre-retirement income to maintain their standard of living after they stop working. An easy way to think about this is to set your savings goal as a multiple of your annual income just before retirement. The answer Munnell and her colleagues have come up with is that your retirement assets should total five to six times your final income.