Can we save the retirement dream?

It looks like the end of the American retirement dream as we know it. The 77 million baby boomers who are heading into their golden years with shattered nest eggs may prove to be the first generation in modern U.S. history to have less retirement security than their predecessors.

The numbers tell the story. For older workers, those ages 55-64, nearly 30% had no personal retirement savings — zip, nada — according to a recent analysis by benefits consultants Watson Wyatt, which reviewed data from the 2007 Survey of Consumer Finances (the most recent available). Those non-savers were mainly low-income households, but even among middle- and upper-income groups, retirement wealth was "generally inadequate," say the consultants.

Worse, only an elite 15% of households of any income level had saved the equivalent of at least four times earnings. And even that level of savings will probably not be enough to support you without a drastic downgrade in lifestyle. Say you are a 65-year-old who has saved four times your $100,000 salary, or $400,000. To reduce your chances of outliving that money, you should count on withdrawing only between 4% to 5% of that amount each year, or $16,000 to $20,000. (To see how much you need to save for retirement, cnnmoney.com's retirement calculator can give you a rough idea.)

Social Security boosts that income, but the higher your salary pre-retirement, the less it helps afterward. For the lowest-paid individuals, according to one study, Social Security replaces 71% of income; for the highest-earning workers, it replaces only 31%. If you're the 65-year-old retiree in our example, a simple Social Security calculator estimates you'll receive $24,000 a year in benefits; adding in withdrawals from savings brings your income to around 40% to 44% of the pre-retirement level. Not all that retirement income is taxable, but it's still a big drop. And remember that Watson Wyatt's estimate of people's retirement savings is based on 2007 wealth levels; the recent market downturn has undoubtedly reduced the ranks of households that are successfully saving for retirement. (To get an estimate of your Social Security income, try this tool.)

All of which makes retirement security a critical issue that the Washington has yet to confront. Right now President Obama is grappling with a stalled health care plan and controversial financial reforms, among other issues. But judging by the one measure he has put forward, he seems to support only incremental change: His automatic IRA plan would require employers that don't currently offer a retirement plan to automatically enroll workers in an IRA. (They could opt out.)

But that proposal doesn't address the real causes of the crisis, according to many economists, who say do-it yourself plans like 401(k)s and IRA burden investors with too much risk and fail to deliver reliable retirement income. Some recommend crafting a universal retirement savings plan instead that would spread risk and responsibility among workers, employers and the government.

Even many supporters of the current system urge broader reforms. Says Christian Weller of the Center for American Progress: "The three-legged stool of retirement — public pensions, employer pensions and individual savings — is still intact, but it does need to be strengthened." He suggests more automatic features individual retirement accounts that would make them look more like pensions, as well as offering incentives for workers to stay on the job longer.

Clearly, given the pace of change in Washington, any major reforms, if they ever happen, are a long way off. Meanwhile, would-be retirees will need to save as much as they can and work longer they planned. That doesn't bode well for the American retirement dream.

What do you think should be done to rescue the retirement?