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The Ugly Truth About Retirement Savings Shortfalls

A new study notes the U.S. retirement savings shortfall is worse than even the most pessimistic onlookers may think.

The upshot is that Americans will be getting less out of their 401(k)s and IRAs than they think. A lot less.

The study by the National Institute on Retirement Security, using data from the U.S. Federal Reserve, shows that retirement savings "are dangerously low" and that the U.S. retirement savings deficit is between $6.8 and $14 trillion.

Worse, the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households, the study reports.

[Read: How to Kick-Start Your Retirement Savings in 2018.]

What, exactly is going on with Americans and poor retirement savings habits? More importantly, what can be done -- finally -- to solve the problem of barebones bank accounts in retirement?

"If Americans continue to ignore their future, I anticipate a serious retirement train wreck in 20 to 30 years," says John Brandy, founder of Open Mind Generations, in Redmond, Washington.

The typical savings rate for most people is somewhere around 1 to 3 percent of their annual income, and that's nowhere near enough to turn the tide on low retirement savings. However, history suggests that if we save roughly 10 percent of our incomes, we're likely to achieve many of our goals," Brandy says. "And, if we save 20 percent from gross income before health insurance and taxes, that we are likely to able to achieve most, if not all, of our financial goals."

Brandy says part of the problem is steeped deep in American culture -- and not in a good way. "It seems to be a cultural difference, as many of my customers are from Southeast Asia and they are already conditioned to save more like 30 to 50 percent of their income," he says. "My customers from Europe, Canada and the U.S., so-called westerners, tend to demonstrate that savings shortfall problem far more often."

To get back on track to more robust retirement savings, investment gurus advise focusing on what you can control, and avoid the things you can't.

"If you're overwhelmed by how much money you should have before retiring, start with your expenses," says Kevin Ward, president of Park + Elm Investment Advisors in Indianapolis. "Focus on the expenses you can control. Naturally, the less money you spend on an annual basis, the less money you'll need to retire."

It's not a matter of luck, as your expenses determine if you can truly afford retirement, Ward says. "Sure, we don't know exactly how much we'll spend on an annual basis in the future, but most of us can reduce several major expenses like housing, transportation and food, if we truly tried," he says.

[See: 13 Tips for Singles Nearing Retirement.]

One strategy Ward touts is to aim for a "basic expense target" in retirement that can be calculated based on your individual needs. "Simply multiply your current gross pay by 80 percent," he says. "This is a reliable factor for retirement spending, even though it's not necessarily perfect. But a comfortable retirement can be expected at this spending rate."

If you don't start accelerating your long-term savings and investment plan, you're going to have to dial down your retirement expectations in retirement, experts say.

"Most people have not saved enough," says Robert Riordan, a certified public accountant in Columbia, South Carolina. "But they don't realize they're going to have to reduce their standard of living by about 50 percent in retirement, and they're going have to reduce their expenses down because they're going to be on a budget in retirement."

Factor in additional needs like health care and a six-month rainy-day fund, and Americans who have not saved enough for retirement, for whatever reason, are in for a serious reality check, Riordan says.

If you're in the position of not having nearly enough saved for retirement, the one sure first step you can take is to talk to a financial advisor who can create a savings blueprint -- with accountability -- that can get you going in the right direction.

"The key is to plan responsibly using a properly qualified financial planner or advisor," says Rob Drury, executive director at the Texas-based Association of Christian Financial Advisors. "Most advisors will perform basic planning functions at little or no cost.

"If one's financial picture is more complex, paying reasonable fees is well worth the investment," Drury adds.

The downsides of having a significant retirement shortfall are many, but the upside is, if you're still in the workforce, there's a path back to long-term financial solvency.

[See: 10 Questions to Ask Before You Hire a Financial Advisor.]

Start that journey with a candid talk with a trusted financial professional, and be disciplined about moving forward, with a financial "catch-up" plan in hand.

The sooner, the better -- it's no fun to be basically broke in retirement, and you don't want to find that out the hard way.

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