(FORTUNE Magazine) – May your hands always be busy May your feet always be swift May you have a strong foundation When the winds of changes shift . . . May you stay forever young. -- ''Forever Young,'' by Bob Dylan, 48

A PLEASING THOUGHT from a man who in 14 years will be eligible for Social Security. But in fact your feet eventually may begin to drag, and you may want to retire. When you do, will you have a strong foundation? Consider this: In an inflation-free world, the median FORTUNE subscriber, whose household income is about $83,000 and whose age is 45, will need $1.2 million in financial assets in order to retire at 65 without a reduction in his or her standard of living. Crank in an inflation rate of 4.5% and the figure rises to $2.8 million. Getting together that kind of money promises to be harder than ever. Termites threaten the three-legged stool that Americans have traditionally relied on to provide for their retirement -- Social Security, private pensions, and savings. Congress is spending your Social Security money, cost- conscious companies are pruning pensions, and future retirees are living it up today rather than saving for tomorrow. All the while, the baby-boom generation, 78 million strong, is beginning to creep past the point -- age 40 -- by which, the experts say, you should have begun planning for retirement. Too few have started preparing in earnest, and still fewer are saving on the scale required. Since boomers are healthier than their predecessors, they're likely to live longer. If these hard-working sorts finally vacate their offices at anything like 62, today's average retirement age, they will have the longest, and costliest, retirements in history. And who's going to help them pick up the check? Don't count on the generation coming along. By the time the last weary boomer hits 65 in 2029, the ratio of workers to retirees will drop from about 3.3 to 1 today to less than 2 to 1. That could create tremendous economic conflict with an overtaxed ''baby bust'' generation. Faced with such shifting winds of change, your hands could stay busy for considerably longer than you'd expected. Says Steve Vernon, 36, an employee benefits expert with the Wyatt Co. consulting firm: ''If they don't start actively planning for it, the future of retirement for the baby-boomers is work.'' BENEFITS EXPERTS and financial planners observe that if you are over 50, your retirement plans are probably shipshape. Fearful memories of the Depression made many older Americans determined savers. Their timing was good too: They were at work during the country's most robust years of postwar economic growth, when employers were generous with benefits. Their investment in homes commonly yielded a return many times greater than inflation. Social Security looks reasonably secure for the next 20 years. And they were the fecund generation who spawned the baby boom. All those grown-up babies will be around to help bear the responsibility, and the expense, of what has come to be known as elder care. If you are under 50, on the other hand, you may feel too busy to plan for retirement and too broke to save. The average workweek is up, average leisure time is down, and the average baby-boomer thinks time's winged chariot is running over his foot. Says Paul Hewitt, 37, executive director of the nonprofit Retirement Policy Institute: ''The baby boom as a generation has been its own worst enemy. Whenever we wanted anything the price went up, and when we sold the price went down. So we got less for our labor and paid more for our houses. When we want to sell those houses the price will go down, and when we all want medical care in old age, prices will go up.'' COLLAR many people in their 30s or 40s for a moment between the phone and the freeway and they'll facetiously volunteer that they'd love to retire tomorrow, but then admit that's about as deep as their reflections on the subject go. Says Ken Sandbank, a 32-year-old copywriter for the Chiat/Day advertising agency in New York: ''I don't give much thought to retirement. It's intimidating. My identity is tied to my career.'' While this may not seem that much of a departure from past practice -- how many 40-year-olds have ever seriously planned for retirement? -- some experts argue that insouciance is more widespread among this generation than among its predecessors. Says Donald L. Kanter, a psychologist and co-author of a new book called The Cynical Americans: Living and Working in an Age of Discontent and Disillusion: ''These people have seen inflation, layoffs, and a stock market crash. Ordinarily, looking out for No. 1 would lead to planning for retirement. But if it seems society is going to hell, the whole effort isn't worth it.'' So you go with blind optimism instead. Baby-boomers' expectations of retirement remain high even when they haven't done enough planning or saving. Nancy Sims, 30, a Houston consultant, has a typical vision of the future: ''I see my retirement as very active. I'll have enough money to live and do volunteer work for the arts. Also I'll travel.'' In May, Merrill Lynch released the results of a survey it conducted among 45- to 64-year-olds nationwide. The survey found that 74% expect a standard of living in retirement the same as or better than today's, and 59% want to retire before age 65. Yet only 18% save at least 20% of their income, a minimum for anyone who wants to leave the work force early. Respondents in the Merrill survey also shared in the common misperception that if you have a substantial income, you're somehow insulated from downward mobility after retiring. Among those earning $50,000 or more, the number expecting no drop in their standard of living jumped to 86%. In fact, the more you make, the larger the share of it you need to save. Most people find that about 70% of their preretirement income will maintain their standard of living. Social Security's maximum individual benefit is only $10,788 a year. Accordingly, the portion of earnings Social Security will replace diminishes rapidly as you climb the income scale. Someone with a typical company pension who earns $30,000 a year at retirement may not need to save at all, but someone who earns $125,000 will need savings that generate enough to replace 21% of preretirement income (see chart). STEVEN B. ENRIGHT, a financial planner with Seidman Financial Services, says more than three-quarters of his clients earning $100,000 and up, who on average have assets of at least $1 million, cannot meet their anticipated financial goals in retirement without significantly increasing their saving. He's talking about people like John Kelsey, 48, a stockbroker with Smith Barney in Houston. He earns $500,000 a year with his real estate broker wife but didn't think about planning for retirement until recently. ''When you're so busy doing things,'' Kelsey says, ''you tend to think your career will grow so much you'll be able to save later. When you're on the leading edge of your profession there's a feeling of invulnerability.'' Consider the vulnerability of that median FORTUNE subscriber, age 45 with a household income of $83,000. If his income increases 6% a year, no great shakes if inflation runs a constant 4.5% annually -- assumptions also used in calculating what the cover subjects will need -- he will be making $266,192 in 20 years, calculates Decker & Associates, a Houston firm that helps employers and employees figure the value of retirement benefits. Assume he will need 70% of that, or $186,305, to retire comfortably. To maintain his standard of living until he's 90 in the face of that same inflation rate, he will need to have assembled financial assets of $2.8 million by his retirement in 2009. Social Security should provide an inflation-adjusted $22,500 a year by then, which Decker figures is equivalent to the payout from an annuity worth $342,569 in that year. Assuming the subscriber has ten years of service with a typical large company, his pension benefits, which will pay $60,716 a year, are worth another $621,379. This median subscriber has an investment portfolio of $142,100, which should grow to $726,422, assuming an 8.5% after-tax return. On retirement these assets will total $1,690,370, leaving a shortfall of $1,146,177 to be made up from additional savings. That would mean setting aside 17% of his household's pretax income from here on in. To retire at 62, he ought to save something approaching 30%. This news may come as a nasty surprise. ''There is an abysmal lack of understanding of what retirement income is going to be,'' says Suzanne Kenney, manager of something called Employee Listening Services at Hewitt Associates, a compensation and benefits consulting firm. Hewitt's surveys find that only 49% of employees feel they have a good grasp of their retirement benefits, compared with 71% who say they understand all other benefits. In Kenney's focus groups she asks what percentage of their preretirement income employees think their pensions will provide. ''People are afraid to even hazard a guess,'' she says. ''We have frankly been shocked that people don't have any idea at all.'' THE SHORT ANSWER about pensions is they probably aren't as good as you think they are. Many employers are moving away from defined benefit pensions, long the most popular type, in favor of so-called defined contribution plans. For employees who don't change jobs frequently, defined benefit plans are vastly preferable. They guarantee a monthly cash benefit based on an employee's salary and years of service. The employer funds the plan and insures employees get paid. By contrast, in defined contribution plans, which include profit-sharing and 401(k) plans, the employer puts a certain amount into an individual's account each year, sometimes merely matching his contribution. Given the effects of tax-free compounding, the payoff can be handsome, but the employee takes the risk, not the company. The number of employees whose primary pension coverage was in defined contribution plans more than doubled from 1980 to 1987, to 13.4 million, reports the Labor Department. Meanwhile the number primarily covered by a defined benefit plan dropped 4%, to 28.5 million. Cost-conscious employers can save big by making the switch. If it's a tough year, companies usually have no obligation to pay into a profit-sharing plan. In 401(k) plans, not all employees choose to participate -- incredible stupidity on their part -- and it typically costs a company only about 1% to 2% of its total payroll costs to match employee contributions. Compare that with the 7% of payroll that on average it costs to fund a defined benefit plan. Last fall Merrill Lynch terminated its defined benefit plan in favor of a defined contribution scheme and booked a $220 million after-tax gain as a result. IF YOU ARE at all tempted to live for today, defined contribution plans can get you in big trouble when you change jobs. Since the assets belong to you, you can usually take your account with you as a lump sum. Although there's generally a 10% tax penalty for withdrawing the money and spending it, most people do. The Employee Benefit Research Institute, a nonprofit research organization, found that in 1983, astonishingly, only about 30% of lump-sum payouts were saved in any form, including as an investment in a home. If you don't spend your entire career with one company, even a defined benefit pension may not be much help. Such plans usually aim at replacing about 40% of pre-retirement income, but only lifers wind up with that. The Congressional Research Service calculates that working for five employers over the course of a 42-year career would leave you with half the pension of your counterpart who never moved.

Boomers change jobs more often than their parents did. Take Bill Brooksbank, 38, president of a small Houston consulting firm, who worked earlier for Tenneco, Exxon, and a subsidiary of Merck. His father spent his entire career with Baltimore Gas & Electric and retired comfortably at 59. But so far young Brooksbank's only vested pension is $4,800 a year at 65, from Tenneco. If inflation is a mere 4%, that will give him the equivalent of only about $1,700 a year in today's purchasing power. ''Corporate America can't be relied on for retirement money,'' says this Harvard MBA. ''You have to be self-reliant.'' Chastened, he's currently saving 17% of his pay. Better not count on Social Security's so-called surpluses to make up for shortfalls in your corporate pension. Congress has been reducing future benefits. Most young Americans probably didn't pay much attention in 1983 when Congress raised to 67 the age at which workers become eligible for the maximum Social Security benefit, effective 2027. But who will have to wait? Today's 29-year-olds. Congress also imposed a tax on 50% of Social Security payouts to retirees with incomes of $32,000 and above for a couple, $25,000 for a single person. It was the first time any Social Security benefits got hit by taxes, but it probably won't be the last. At the same time, Social Security is taking a progressively larger bite out of income that might otherwise go to, say, savings. The maximum Social Security tax in 1959 was $120. In 1989 it will be $3,605 for individuals earning $48,000 or more. In part because of the higher taxes, the system is in excellent shape -- today. In 1989 taxes will generate $58 billion more than the cost of providing benefits to retirees. But that $58 billion isn't being squirreled away somewhere; it's being spent by the government wherever it chooses. It also masks the fact that the federal deficit would be just that much higher if the money weren't available. In effect, other parts of the federal government are writing IOUs to the Social Security trust fund. The surpluses now built into the system are expected to eventually generate as much as $12 trillion by 2030 to provide for the enormous hit of baby-boom retirements. WHAT IF it's a $12 trillion IOU instead? Who will pay? Unless the boomers' benefits in retirement are taxed heavily, or the government invests the money in productive assets, the burden will fall mostly on hapless baby-busters. If benefits stay roughly where they are now, workers in 2040 could find Social Security taking as much as 40% of their paychecks. Minnesota Republican Senator David Durenberger worries so much about burdening future taxpayers that he has founded a group called Americans for Generational Equity (AGE). He thinks beneficiaries of future government social insurance programs should pay for more of their benefits and points approvingly to the income-tested co-payments for Medicare catastrophic illness coverage Congress put in place last year. Durenberger argues that today's system encourages people not to save, and he wants to change that. Reducing taxes on interest from savings would be a good way to start. Says the Senator: ''It's all about signals. When people find they're being rewarded rather than penalized for saving, they'll realize they can't rely on others to take care of their retirement.'' PERSUADING individuals to start saving won't be easy in this age of Acuras, aquavit, and acquisitiveness. While the personal savings rate in the U.S. has improved a bit of late, at 5.2% of disposable income it remains among the lowest in the industrialized world. Susann Felton, 40, a purchasing manager for Potomac Electric Power in Washington, and her husband, who writes computer software, get flak from their friends for putting away 20% of their income: ''People look at us like we're crazy because we save for retirement. They say, 'You ought to be taking a trip to the Caribbean or something.' '' The friends taking the trips will probably wind up working later in life than the Feltons. They may not mind that. Merrill Lynch's survey of people 45 to 64 found that 52% expect to work at least part time in retirement. Robin Thomas, 38, a marketing manager for a cable television company in New York City, speaks for many baby-boomers when she says, ''I never see myself as being idle. I'll probably work into my 70s. I don't look forward to retirement.'' Quite a few economists foresee a worker shortage so severe that at retirement age boomers will be able to cut a deal to continue working on their own terms. ''We won't retire,'' says Wyatt's Steve Vernon, ''we'll retread.'' Companies are already hustling to recruit older workers. The Days Inns motel chain started hiring seniors for its Atlanta reservations center in 1985 and , now employs more than 65 of them. The oldest is 77. Dan Young, 72, began working in the center three years ago. ''I wanted to be wanted,'' he says. ''I don't work here for the money but because working keeps me young.'' Working after 65 may sound acceptable from 25 years away, but what if your health fails? ''Everybody needs a retirement plan even if they don't plan to retire,'' says Robert C. Atchley, director of the Scripps Gerontology Center at Miami University in Ohio. The rapidly rising cost of health care has all the experts worried. The Brookings Institution recently estimated that, with inflation figured in, by 2020 the cost of a year in a nursing home would be about $158,000. Corporations are already finding the cost of their medical plans rising 20% to 30% a year. A proposed new accounting rule would require companies to recognize liabilities for future retiree medical care as they accrue, a change that could well lead to cuts in benefits. Wyatt Co. found in a 1988 study that 39% of big corporations either have already reduced or eliminated medical benefits for future retirees, or plan to. Staying healthy is your best single investment for retirement. While boomers stand a good chance of living into their 90s, little headway is evident in the fight to prevent diseases such as Alzheimer's or arthritis, whose incidence is higher after 85. Active workers today have a 1-in-5 chance of eventually needing long-term care, says Atchley. Yet many boomers still shirk planning with the glib and fatalistic logic of a 30-year-old New York woman who says, ''I don't believe the statistics. With all the environmental problems I have a hard time believing I'll live longer. I don't want to live until 90 anyway if I have to live in a nursing home.'' Her attitude may change, though, as she gets closer to that age. SOUND THINKERS who do want to start planning should begin by taking a hard look at their assets now, at what their employers will provide, and at their investment alternatives (see table). If the numbers fall short of the goal, you have several options: Save more, try to increase the return on savings you already have, delay retirement, or decide to accept a lower postretirement standard of living. Don't forget that inflation will probably continue after you retire. You may plan to take your pot of $1 million and put it into a 7% tax-free bond, to yield a healthy-sounding $70,000 of income in your first year of retirement. But if inflation runs along at a modest 4% annual rate, in ten years that $70,000 will only buy about $47,000 worth of food, housing, and medical care. Thirty-year-olds can probably finance a comfortable retirement by saving at least 10% of income from now on. If you wait until you're past 40 to get started, put away 15% to 20%. If you're self-employed or don't have a pension, you may have to raise the amount to -- brace yourself -- 35% to 40%. If your employer offers a 401(k) plan, you've got a terrific way to store up dollars tax-free. Contribute the maximum. Find out whether your company provides a generous pension. ''If they don't,'' advises Wyatt's Vernon, ''move to one that does.'' If you're not eligible for a pension, open an IRA. And get ready to practice what just might become the fashion among boomers in the 1990s: postponing consumption. Says Emily Andrews, 47, a pension expert at EBRI who puts away about 15% of her income and drives a 1984 Toyota Corolla: ''People laugh at my car. But I want to be a rich old lady. It's a lot easier to be poor when you're young than when you're in your 70s.'' To join her on the beach or the golf course in 2025, start planning -- and saving -- now.

CHART: NOT AVAILABLE CREDIT: SOURCE: SOCIAL SECURITY ADMINISTRATION CAPTION: PROJECTED POPULATION GROWTH 1987-2030 The elderly population will swell as the baby boom jogs into old age. If your household earns more today, you need to save more to maintain your standard of living. The calculations assume you have a typical pension and will need 70% of your preretirement income.

CHART: NOT AVAILABLE CREDIT: SOURCE: NOBLE LOWNDES USA CAPTION: SOURCE OF RETIREMENT INCOME The elderly population will swell as the baby boom jogs into old age. If your household earns more today, you need to save more to maintain your standard of living. The calculations assume you have a typical pension and will need 70% of your preretirement income.

CHART: NOT AVAILABLE CREDIT: SOURCE: IBBOTSON ASSOCIATES, CHICAGO CAPTION:THE LONG TERM PAYOFFS ON SAVINGS