Early in my career at Forbes an editor introduced me to the quotation, "Everybody ought to be right," attributed to a 1929 Ladies Home Journal article by John Jakob Raskob, a financier for General Motors and Dupont and a darned good boom times investor.  What Raskob meant was:

"...a man is rich when he has an income from invested capital which is sufficient to support him and his family in a decent and comfortable manner - to give as much support, let us say, as has ever been given by his earnings."

Raskob's article, written before the big crash and the Great Depression has been mocked by history but read his definition of rich again -- history has apparently taught us nothing.  Raskob described then what we now expect of tomorrow's retirees.  In order to retire from work based on your own savings you will have to achieve the rich status that Raskob described.  Absent a pension or robust Social Security system, not other achievement will get the job done.  You will have to be able to support yourself and your family in a comfortable manner, using the income from invested capital rather than earnings.  To retire, you must get rich.

The rule of thumb that planners use is that to retire with $50,000 of income a year you will need to have about $40,000 saved for each year you plan to live in retirement.  So, if you retire at 65 and think you'll live until you're 80, you need at least $600,000 in the bank.  This will leave you little room to deal with errors or inflation.  If you live past 80, you're also in trouble.  An insurance company will sell you an annuity to deal with that, but not for free.

$600,000 is a lot of money and in retirement it doesn't get you much.  It might get you today's median income years and years from now.  But retirement is cheaper, people say.  You won't need stylish new clothing because you're not going to work.  Apparently you are going to sit around in your pajamas watching Matlock in syndication and eating bologna and Mac'n'Cheese.  Heaven forbid you want to travel or have dependents or you get sick.

The only way to guaranteed have $600,000 in the bank after 30 years of work is to save an average $20,000 a year that you keep in cash investments.  That is practically very difficult to do if you make the median income because it means saving 40% of your pretax income.  Last I checked, the limit to what you can contribute on a tax deferred basis to an IRA or 401(k) is only $18,000 a year.  Even the tax code doesn't support you saving 40% of your pretax income. Beyond that, saving that much is not feasible for individuals.  As our friend Raskob acknowledges, until you are rich, you need that income to pay your present day bills.

From a macroeconomic standpoint, what would happen to the U.S. economy if consumers were to suddenly sock away 40% of their income every year?  It was a problem when the savings rate climbed to 5% after the crisis.  If people saved 40%, there would be a Depression, people would lose their jobs and they would have nothing to save at all.

But, let's continue on the micro level.  Nobody expects you to save $20,000 a year out of a $50,000 a year salary.  They expect you to save around a fourth of that amount.  Over 30 years you've saved up $150,000.  Good job!  The gap between $150,000 and $600,000 is rather large, though. I'll rig the odds in you favor and give you $150,000 to invest up front.  You have 30 years to get to $600,000.  If you have an 8% rate of return, your money will double every 9 years.  So, you will make it.  At year 9 you have $300,000.  At year 18, you have 600,000. At year 29 you have $1.2 million.  You are Raskob's champion.  If you get a 6% return, you still make it.  You have $600,000 at year 24 and can get to about $900,000 by retirement time.

You see why this is a rosy picture, though.  I've given you $150,000 up front to invest for 30 years.  You know who gets to do that?  Rich people.  If you're not starting out as a rich person, let's say that you can save $5,000 a year (10% of pre-tax salary) and that you get to invest it for 30 years.  I've done the 30 iterations here of a future value calculation for each of these $5,000 annual investments, assuming an 8% compounding return over three decades.  Year one is $5,000 invested for 30 years at 8% that will give you $50,313.28 at the end of 30 years.  Year 30 is $5,000 that you put in. It's worth $5,000 as it has no time to compound.  Sum up all of the future values of cash between years 1 and thirty and you retire with a grand total of $611,329.33.

So, if you get the 8% return, you barely make the $600,000 minimum.  If you get even a 7% return, you fail.  If you get a 5% return, you are not retiring.  My 8% return is generous.  It assumes 8% after fees.  That means the investments were really returning 10% or more.

Even the last scenario, where you get to invest equal amounts over 30 years skews the odds in favor of our hypothetical saver,  In reality, you are making a low salary at year one and so you don't get to save $5,000.  Hopefully you can save more later when you are making more but the money you save later has less time to work for you.  If you get laid off or experience some tragedy that forces you to raid your retirement savings, of course, the whole thing is blown.  You might have to start over in year 12, or you might lose a few years in year 23.  What we see here is that it's possible to clear Raskob's low hurdle for "rich" but that it's not easy and the path is fraught with ifs and obstacles.

This is why Social Security is important.  This is why a pension would be nice.

Remember what a low bar this is... $600,000 creates today's median income 30 years from now.  I am not convinced that is adequate at all for a comfortable retirement and the math shows it's tough to even get there, much less to surpass it.  I think it's fair to say that it is not realistic to expect Americans to fund their retirements with private savings and that we should make policy with that in mind.  Expanding Social Security benefits becomes the only rational solution.