Time to Take Stock of Retirement Needs : Finances: Inflation and other uncertainties threaten to cloud those golden years. Prudent planning now may be your saving grace.

“Every time I go on vacation and sit under a palm tree, I think, ‘Wouldn’t it be great to do this forever?’ ” said Lee Rosenberg, co-founder of ARS Financial Services in Valley Stream, N.Y. “Then I get depressed because in a week, I’m back in the rat race.”

Sound familiar?

Unfortunately, if you’re not setting aside enough money now, you may never be able to afford to retire to a tropical island. Nearly half of the Americans recently surveyed by Money magazine said they will have either just enough money to meet their living expenses in their retirement years or they will fall short of what they need.

Rosenberg, the author of “Retirement Ready or Not,” concurred: “You almost cannot find a person who is on target.”

Many people don’t even have a clue of how much they will need when they retire, experts say. And the fact that people are living longer than ever means that your retirement savings may have to support you for 20 to 25 years.

If you’ve never calculated how much you’ll need to live on after you retire, be prepared for a shock.

In his book, Rosenberg estimates that a 45-year-old person earning $60,000 a year would need an annual income of $144,321 to maintain the same standard of living at retirement 20 years from now.

Young people have a powerful weapon on their side: compounding. If you start saving even small amounts for retirement when you are young, you will be ahead of the people who put it off because they have so many other pressing financial obligations. Rosenberg noted that for every 10 years you delay saving for retirement, you have to save three times as much to catch up.

One of the biggest mistakes people make when it comes to saving for retirement is “thinking they don’t have to do it on their own,” said Howard Schneider, vice president of the American Assn. of Retired Persons’ Investment Program from Scudder. Many companies are phasing out pension plans in favor of 401(k) plans, in which the employees make most, if not all, of the contribution.

And as for Social Security, “I think people should not expect to rely on it as anything more than a supplement to private pension and private savings,” Schneider said.

So you’re basically on your own. That’s especially true for the baby-boom generation, which is at a disadvantage compared to the generation that’s retiring now, Rosenberg said. Baby boomers are less likely to have a company-funded pension plan. Unlike their parents, they aren’t in the habit of saving money. And they are not likely to see their homes grow in value the way their parents’ homes have appreciated.

Begin by estimating your retirement living expenses. Some experts say that, as a rule of thumb, you will need 75% to 80% of current income. That’s not true for everyone. In fact, Rosenberg believes that “the greatest myth is that you’ll spend less during retirement.”

There is no doubt that some expenses will be less. You won’t have the same transportation costs because you won’t be commuting to work. Your clothing expenses will probably be less. Even if you remain in the same tax bracket, your tax bite will be somewhat less because you won’t be paying into Social Security. After you retire, perhaps you will have paid off your mortgage and be out of debt.

But these savings may be depleted by new expenses: You may spend more on travel, eating out and medical bills. You need to consider whether you want to have money left over to leave to your heirs.

Finally, you should be sure to factor in the cost of living of the area where you plan to retire. You may need more money if you retire in the Northeast.

Now you should have an estimate of what you’ll need to live on. But the total is in today’s dollars. Depending on how many years until you retire, that figure will balloon--and it will continue to balloon during the years of your retirement.

Consider this example, from “Planning for Retirement,” a guide produced by the AARP Investment Program from Scudder: Ben and Thelma estimate they will need $30,000 a year in today’s dollars to maintain their standard of living. Assuming 4% inflation per year, they will actually need $39,478 during the first year of retirement.

But if they live for another 27 years, by the 27th year of their retirement they will need $113,829 to maintain an income equivalent to $30,000 today. If you are in good health, you should plan on supporting yourself until you are 85 to 90 years old.

Once you’ve estimated how much money you’ll need, see what resources you have. There are three main areas to consider: Social Security, private pension plans and your own retirement savings, including 401(k) plans and IRAs.

Ask your employer and the Social Security Administration for help figuring out your annual income from them. The difference between that total and the amount you need to live on is what you must generate from your savings.

Add up what you have already saved toward retirement, and estimate what it will be worth when you tap into it. You want this amount to fill in the gap between your expenses and Social Security and your company pension plan, if any. And you want it to last for all the years of your retirement.

If all this has you confused, Rosenberg has some simple advice: People in their 20s and 30s should save 5% of their income toward retirement. When they reach their 40s, increase that amount to 10%.

Finally: Don’t count on an inheritance for retirement income. Unexpected medical bills, or even a change of heart, may cause it to fall through.