If you read the news on a regular basis, you know it's no secret that many Americans aren't prepared for retirement. A big part of the "retirement crisis" is a simple lack of knowledge. Too many Americans have no idea how much they'll need for a comfortable retirement, how much they can expect to receive from Social Security, or how to save for retirement while simultaneously cutting their tax bills.

With that in mind, here's what you need to know to formulate a plan of attack for your own retirement savings.

How much do you need to save?

As my colleague Sean Williams points out, although most people have a number in their head as far as retirement savings goes, more than half (53%) of Americans are guessing. In other words, they have no idea what they really need to save for a comfortable retirement.

There's no one-size-fits-all way to determine retirement needs, but here's a good way to get an estimate:

  • Experts generally say you'll need 80% of your pre-retirement income after you retire. So, take your current salary (or what you expect it to be at retirement) and multiply it by 0.8.
  • Next, subtract your expected Social Security income for your intended retirement age, which you can find by creating an account at www.ssa.gov, and viewing your Social Security statements. This tells you how much income you'll need from savings.
  • Finally, a good rule of thumb is that you can reasonably expect to withdraw 4% of your savings each year, and never run out of money in retirement. So multiply the income you'll need from savings by 25.

For example, if you earn $100,000, you will need $80,000 after retirement. If you expect $25,000 per year from Social Security, that implies you'll need $55,000 from your savings. Multiplying that number by 25 tells you that you should aim to save $1.375 million.

As I mentioned, this formula isn't an exact science, but it can be modified to fit your goals. For instance, if you plan to travel the world after you retire, 80% of your pre-retirement income may not be enough. Conversely, if you're more of a saver, and plan to live a conservative lifestyle, you may be able to get by on considerably less than 80%. Adjust the formula accordingly. The point is that your retirement number shouldn't just be a guess -- it should be a well-thought-out estimate of your actual needs.

Don't rely too much on Social Security

As of March 2016, the average Social Security benefit for a retired worker is $1,345 per month. To be perfectly clear, Social Security isn't intended to be your only source of retirement income, nor is it likely to be enough for a reasonable quality of life all by itself.

To get an estimate of how much you can expect to receive from Social Security, you can create an account at www.ssa.gov, and view your most-recent Social Security statement. Here you'll find an estimate of your monthly benefit at full retirement age, as well as how much you'd get if you filed as early as possible (age 62), or waited as long as you could (age 70).

Source: Social Security Administration.

Keep in mind that this is just an estimate, and it makes some assumptions that may or may not be accurate, such as your salary remaining the same for the rest of your career. However, for retirement-planning purposes, it's a good estimate to start with.

It's also important to know that Social Security is unsustainable in its current form, and starting in 2034, there will only be enough money coming in to cover about three-fourths of promised benefits unless something changes. Something will almost certainly be done to fix this shortfall, and could come in the form of tax increases, benefit reductions, or both.

Another big assumption that your statement makes is that nothing will change, and that's simply not likely to be the case. I've written before that, although it's unlikely (but entirely possible), full retirement age could be 68 or even higher by the time you get there. 

Know how to maximize your tax advantages

You may not realize it, but any money you contribute to your 401(k) isn't counted as taxable income. For example, if your salary is $50,000, and you put $3,000 into your retirement plan, only $47,000 of your salary will be reported as federally taxable earnings. As of 2016, you can choose to defer up to $18,000 of your salary into your 401(k), plus an additional $6,000 if you're over 50, so take advantage of this tax shelter.

Similarly, there are tax incentives to contribute to an IRA, as well. You can contribute up to $5,500 to an IRA for the 2016 tax year ($6,500 if over 50). Traditional IRA contributions could be deductible on your tax return, depending on your income and eligibility to participate in an employer's plan. Roth IRA contributions aren't eligible for a deduction, but your qualifying withdrawals will be 100% tax free.

In addition to these benefits, if you're in the low- to moderate-income range, you may also qualify for free money to save for retirement, thanks to the Retirement Savings Contributions Credit, also known as the "saver's credit." This can be worth up to $1,000 back per person, so if you're single and earn less than $30,500, or married and earn less than $61,500 combined, this is definitely worth taking advantage of.

It's far better to over prepare

As a final thought, when you're determining how much you need to save, or estimating your Social Security benefits, one thing to keep in mind is that it's far better to over prepare for retirement, even if it means tightening your belt, and saving more than you think you need now.

According to the Social Security Administration, the average 62-year-old can be expected to live to about 83. However, that doesn't mean that you should plan for your financial needs just until that age.

You should assume that you're going to live to be 100. After all, what happens if you're 90 and run out of money? What will you do, go back to work?

The same logic applies when estimating your income needs and Social Security benefits. Plan on needing a little bit more than you think you will, and plan on receiving a little less from Social Security than you expect. While it may seem like a burden in the short term, your future self will thank you for the peace of mind this extra preparation will provide.
