Here's a vision of your future that's bound to wake you up in the middle of the night in a cold sweat:
The doctor says you need nursing home care. If you're like the average American, you'll have to gather every dime you have and sell off all your possessions as well. That will buy you seven months. Then, you're penniless.
Researchers at Merrill Lynch & Co. say this eye-opening prediction is only a symptom of a much larger problem. According to their recent survey, Americans are not only ill-prepared to pay for their retirement, they have a dramatically inaccurate view of what their golden years will cost.
"People expect that they're going to make more and more money and that sometime in the future they're going to take care of [retirement]," said W. Michael Welsh, a vice president in Merrill Lynch's office in Tallahassee, Fla.
He is concerned that many people say, " 'I know I have to do it, but now I have more pressing problems.' I see fewer people of this generation with the kind of savings attitude that previous generations had."
Merrill Lynch's survey of 400 American pre-retirees aged 45 to 64 shows many are counting way too heavily on somebody else for money after they stop working, the researchers say. In fact, nearly 60 percent of those interviewed in the December 1990 survey said that they expect to get most of their income from Social Security or employer pension payments.
They're in for a surprise. Treasury Department officials say that retirees making more than $20,000 receive only a third of their income from those two sources.
How crucial is it to start saving now?
Merrill Lynch figures show that if 35-year-olds start throwing $1,542 a year into their retirement pot, they'll have $145,633 by the time they retire at age 65.
Think of the $1,542 as enough for almost three mortgage payments on a $70,000 home with a 9 percent mortgage.
And that's the minimum you'll need to generate 60 percent of your pre-retirement income when you stop working.
The recommended savings bill goes up the longer you wait. Delay until you're age 40, and you'll have to put aside $2,089 each year. Super-procrastinators who don't start saving until they're 55 will have to throw a whopping $6,387 each year into the bank to keep up.
"You have one chance at this savings game," says William S. Horak, a Tallahassee financial planner. "You can't start over when you're 40, 50 or 60. You're halfway through it."
If Americans don't reform their savings habits soon, one Merrill Lynch executive contended, future generations could be stuck paying the bills.
"This group includes the first of the 'baby boomers' who face immense financial hardship if they fail to change their savings habits," said John L. Steffens, executive vice president of the Merrill Lynch Private Client Group.
"Our children and grandchildren will inherit huge financial burdens," Mr. Steffens said, "of caring for this large generation of elderly indigents."
Understanding why that burden is likely to be substantial requires some appreciation for the power of inflation, Mr. Horak said.
The next generation of retirees not only will have the same basic costs as this one -- food, shelter, transportation and health care -- but virtually everything will cost more.
So Mr. Horak, who offers financial-planning classes, takes clients and students on a pretend grocery shopping trip to see how five selected items have increased in price between 1970 and today.
According to Mr. Horak's research, the price of a pound of coffee, a pound of peaches, a toothbrush, a bottle of shampoo and a large box of detergent has skyrocketed 670 percent -- from $1.81 in 1970 to $13.95 today.
It's not that pre-retirees don't care about price increases. The Merrill Lynch survey found that 94 percent expressed concern about inflation -- up from 83 percent two years earlier.
In fact, the spiraling cost of health care is of particular concern to the pre-retirees. According to Merrill Lynch, 93 percent said that they were worried about paying for their post-retirement medical problems. That's up from 79 percent from 1988.
But Americans still haven't put their money where their collective mouths are, according to Merrill Lynch. Government figures show that the nation's savings rate slipped to 3.7 percent in March 1991, the lowest since 1988.
Here's the crux of the problem: Most Americans on the slide toward retirement still believe they'll be able to pay for their later years despite their anemic savings rate.
About three-quarters of those participating in the Merrill Lynch poll said that they thought they were adequately prepared for retirement.
"The fact is that people have a poor understanding of the cost of retirement and do have unrealistic expectations," Mr. Welsh said.
Part of the problem may be Americans' spending habits.
According to the Department of Labor, the only ones in the 45-to-64 age bracket not spending more than they earn are those with incomes of $40,000 a year or more.
It's worst at the low end; those pre-retirees with incomes between $15,000 and $20,000 are spending an average of $5,366 more than they earn, the Labor Department says.
"In days gone by, people bought things for cash," Mr. Horak observed. "Now, people are living for today. They don't put away money."