"The fact that people have stopped saving less is good — but are they saving enough? The data (are) showing, in aggregate, no," says Certified Financial Planner David Littell, co-director of the New York Life Center of Retirement Income and professor of taxation at The American College in Bryn Mawr, Pa.
The combined retirement income deficit for baby boomers and Generation Xers is estimated to be $4.3 trillion, according to a May 2012 report from the Employee Benefit Research Institute, or EBRI.
Starting younger is better
Ideally, people would increase retirement contributions every year, but they don't because it's very likely that most people have no idea how expensive 30 years of retirement will be.
According to a March 2012 report from EBRI, 56 percent of workers say they haven't calculated how much they need to save for retirement.
Calculating retirement income needs is the first step to establishing an effective retirement savings rate. It may be higher than you think, particularly if you're older than 30.
For instance, with 30 years to save for a 30-year retirement, someone with an investment portfolio split between 60 percent stocks and 40 percent bonds would need to save 16.62 percent of her income per year in order to replace 50 percent of her income in retirement. Those numbers are from the work of Wade D. Pfau, an associate professor at the National Graduate Institute for Policy Studies in Tokyo.
His findings were published in an article titled "Safe savings rates: A new approach to retirement planning over the life cycle," which appeared in the May 2011 issue of the Journal of Financial Planning.