Have less than $25K in savings? Get in line

NEW YORK (CNNMoney.com) -- How much do you need to retire? Whatever your magic number is, few would say $25,000. And yet, there are a lot of people in that boat, according to a survey released Wednesday.

Nearly half of all workers saving for retirement have savings that fall short of the $25,000 mark, according to the 2007 Retirement Confidence Survey by the Employee Benefit Research Institute and Matthew Greenwald & Associates.

Predictably, the youngest workers (ages 25-34) dominate this group - 68 percent of them have less than $25,000 earmarked for their later years. But so do half of workers age 35 to 44 and a third of workers age 45 to 55 and over.

Overall, 40 percent of respondents said they are not currently saving for retirement while 34 percent said they didn't have any retirement money saved whatsoever. A full 25 percent, meanwhile, said they had no savings at all - retirement or otherwise.

While financial pressures can play a big role in how much one saves, so, too, may your expectations: 30 percent of workers said they thought they would need to have a nest egg worth less than five times their current income to live in retirement, while 27 percent thought they needed between five and 10 times their income in savings.

All but the lowest earning men should have accumulated in a nest egg 12 times their income by the time they retire, EBRI estimates. That's $900,000 for a man earning $75,000. A woman, because of a higher life expectancy, should have 14 times her income.

Some might say that's on the high end - especially if you're in line to receive a pension and employer-paid health benefits in retirement. But both defined benefit pensions and paid retiree health benefits are becoming the exception rather than the rule, a fact not reflected in workers' expectations. Sixty-two percent surveyed said they expected to receive a pension when they retire, even though only 41 percent of them said they knew of a pension they or their spouse had coming.

No one rule of thumb can ever provide you with an amount to save that's perfect for your situation. Too many factors go into the equation. Among them: your life expectancy and health risks, your investment risks and your spending habits.

Having said that, there are some sound principles to go by.

First, contribute to your 401(k) at work and contribute at least enough to qualify for the full matching contribution from your employer. (Here's a look the top 5 401(k) flubs and how to avoid them.)

Next, aim to build a nest egg that, in combination with your Social Security benefits and pension benefits if you have them, will be large enough to generate at least 70 percent to 80 percent of your pre-retirement income.

Ibbotson Associates, a provider of asset allocation and other investment research, recommends that you aim to replace 80 percent of your net pre-retirement income - that is, your gross pre-retirement income minus what you contribute to retirement savings annually.

So if you make $60,000 and have been saving $10,000 a year, your net pre-retirement income is $50,000. Your goal would be to have a nest egg that, in combination with your Social Security benefits, could provide you with 80 percent of that a year (or $40,000 on an inflation-adjusted basis).

According to Ibbotson's calculations, if you're making $60,000 at age 35 and have nothing in retirement savings, you should aim to save 14.6 percent of your income - or $8,760 a year. If your employer matches 3 percent of your salary ($1,800) - you only need to save 11.6 percent ($6,960).

If you have some savings already, Ibbotson recommends reducing that 11.6 percent savings rate by 0.55 percentage points for every $10,000 saved. So if you already have $20,000 socked away, you may only need to save 10.5 percent (11.6 - (2 x 0.55)) or $6,300.

This assumes you're single and want to have at least enough in retirement to buy a lifetime annuity that, with your expected Social Security benefits, can provide you with 80 percent of your net pre-retirement income.

Keep in mind, though, you may need much more than 80 percent of your preretirement income if you have a long-term health crisis, but if you're looking for a savings benchmark to start with, that's as fair as any.

For a more detailed look at the particulars of your situation, try this American Savings Education Council calculator.

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