Is your vision of retirement reality or fantasy?
Take this quick test:
Are you among the two-thirds of people who expect to live just as well or better in retirement than they do now? In other words, no plans to cut back after you quit working?
Are you among the one in two people who counts on having enough money to retire before age 65?
Don't kid yourself.
You may dream of luxury cruises and wintering in Florida. Reality is more likely to mean grim downsizing -- a no-frills existence or working into your 70s, your golden-years fantasy shattered because you didn't save.
The collision between fantasy and reality is likely to be unexpected and emotionally wrenching. Here's why:
An influential study concludes for the third straight year that baby boomers aren't saving nearly enough, and worse, don't seem to realize they're in trouble.
On average, 76 million Americans between ages 30 and 48 are saving only about one-third of what they will need to retire, according to the study by Stanford University economics professor B. Douglas Bernheim. The study to be released today, based on a survey of 2,055 people, was paid for by Merrill Lynch & Co., a Wall Street brokerage that stands to gain if Americans invest more for retirement.
"The typical baby-boom household ought to nearly triple its rate of saving," Mr. Bernheim said. "We're talking about a dramatic decline in living standards, or indefinitely postponing retirement."
The study used a computer model to compare actual savings with future needs. Conclusion: Boomers were saving 38 percent of whatthey should have put away at their ages to avoid a drop in living standards when they retire.
The study emphasized the large sums needed to beat inflation. A married couple earning $75,000 a year and covered by a traditional pension would need to save $65,000 by age 45, and $325,000 by age 65. (The figures are $117,000 and $450,000 if they lack guaranteed pensions.)
Groups facing the biggest shortfalls were the 30 percent to 40 percent of baby boomers earning between $60,000 and $100,000 a year, those without pensions and single people. Boomers earning $60,000 to $100,000 without pensions were saving only a quarter of their needs if married, and only a fifth if single.
Better off were married couples earning between $20,000 and $60,000, with pensions. They were saving more than two-thirds of their needs because Social Security will replace a larger share of their smaller incomes.
This year's study found the savings gap could be getting worse.
There's no evidence that older baby boomers in their mid-to-late 40s are socking away more money.
If the trend continues, baby boomers may fall hopelessly behind as they get closer to retiring.
Mr. Bernheim was at a loss to explain this self-destructive trend.
"People are in a state of denial about retirement" because it means cutting back today, he said.
The study probably understates the problem because it doesn't take into account expected cutbacks in Social Security and Medicare. If Social Security were cut 35 percent, baby boomers would have to save five times as much, Mr. Bernheim said.
Predictions about retirement in 20 or 30 years are fraught with uncertainty. The outcome depends on assumptions about the economy, Social Security and behavior that may not hold up.
There's a consensus that baby boomers need to save more, but some experts question Mr. Bern heim's apocalyptic scenario.
Critics worry that alarmist reports could push Congress into adopting costly incentives, such as "Super IRAs," that haven't been shown to increase savings, but could increase the deficit.
The most effective way to boost national savings is to reduce the deficit, which would boost economic growth and living standards, said Gary Burtless, a senior fellow at the Brookings Institution, a research organization. "The best solution is to make the economic pie larger when the baby boomers will be retiring."
He says Mr. Bernheim's study exaggerates the problem by failing to count a big chunk of household savings, particularly home equity.
Paul Yakoboski, research associate at Employee Benefit Research Institute, said it makes little sense to exclude the largest source of wealth for most families. "Boomers are already tapping into home equity to pay for college, indicating they may be willing to downsize the home to pay for retirement," he said.
Critics also point to a 1993 Congressional Budget Office study showing that baby boomers have higher incomes and more wealth than their parents had as young adults.
"Overall, the CBO expects that baby boomers will have higher real retirement incomes than older people today," the study said.