by Gene Walden

Are you really on track to save the money you need to fund a comfortable retirement?

According to some recent reports, you may need to save more—and work longer—to make it through your retirement years without facing financial difficulty.

As Americans live longer, we need more money to cover basic expenses and medical costs. Inflation also takes its toll for those who live 20 to 30 years beyond their working years. What might seem like a sizable nest egg today could be totally inadequate after two or three decades of inflation.

For example, the goal of many investors has been to save $1 million or more for their retirement. But how much would $1 million really provide in sustainable income. If you invested $1 million in a safe, guaranteed 10-year U.S. Treasury bonds, you would receive an annual yield of about 4 percent—$40,000 a year—minus taxes. While Social Security might add to the pot, your total income would still probably be well below your earnings during your working years.

But consider the value of that $40,000 return after inflation. At a compounded annual inflation rate of 2 percent, after 25 years your $40,000 would only have the buying power of about $25,000. At 3 percent inflation, it would be worth a mere $19,000. It’s no wonder a growing number of retired individuals are filing for bankruptcy.

According to the AARP (formerly the American Association of Retired Persons), bankruptcy filings among those ages 75 to 84 jumped 433 percent from 1991 to 2007. Nearly a quarter of the more than 1 million Americans who filed for bankruptcy last year were 55 or older.

How do you avoid the dilemma of an undersized retirement account? A growing number of Americans are working longer in order to save more for their retirement. According to the Census Bureau, in 1950, nearly half of men 65 and older were still working. That number declined to about 16 percent in the 1980s, but has moved up back up to about 19 percent today.

That trend should continue for years to come, according to a 2007 “Health and Retirement Study” by the U.S. Department of Health and Human Services. The study found that compared with 1992, a substantially larger proportion of people in their early to mid-50s said they expected to work after age 65.

The alternative to working longer is saving harder and investing smarter. Talk to your advisor about your retirement goals. Find how much you will need to save to reach your objectives, and ask your advisor to suggest some appropriate investments to provide you with the sustainable income you need to fund a long and prosperous retirement.