Americans have made some headway with their retirement savings after the last few disastrous years. Nearly one-fifth of Americans (18%) are saving more for retirement this year than last year, according to Bankrate's August Financial Security Index. When we asked this same question in 2011, 15% said they were saving more than the previous year -- not a significant difference.

But the same proportion of people, 18%, say they are saving less than they did last year. That's actually much better than last year, when 29% of Americans said they were contributing a smaller amount to retirement savings than the previous year.

"The fact that people have stopped saving less is good -- but are they saving enough? The data (are) showing, in aggregate, no," says Certified Financial Planner David Littell, co-director of the New York Life Center of Retirement Income and professor of taxation at The American College in Bryn Mawr, Pa.

The combined retirement income deficit for baby boomers and Generation Xers is estimated to be $4.3 trillion, according to a May 2012 report from the Employee Benefit Research Institute, or EBRI.

Starting Younger is Better

Ideally, people would increase retirement contributions every year, but they don't because it's very likely that most people have no idea how expensive 30 years of retirement will be.

According to a March 2012 report from EBRI, 56% of workers say they haven't calculated how much they need to save for retirement.

Calculating retirement income needs is the first step to establishing an effective retirement savings rate. It may be higher than you think, particularly if you're older than 30.

For instance, with 30 years to save for a 30-year retirement, someone with an investment portfolio split between 60% stocks and 40% bonds would need to save 16.62% of her income per year in order to replace 50% of her income in retirement. Those numbers are from the work of Wade D. Pfau, an associate professor at the National Graduate Institute for Policy Studies in Tokyo.

His findings were published in an article titled "Safe savings rates: A new approach to retirement planning over the life cycle," which appeared in the May 2011 issue of the Journal of Financial Planning.

Under the same circumstances, someone with 40 years to save would only need to put away 8.77% of his yearly income, according to the study.

Unfortunately, most Americans fall far short of that ideal. The median retirement account balance for Americans between the ages of 55 and 64 is $120,000, according to an analysis of the Federal Reserve's Survey of Consumer Finances by the Center for Retirement Research at Boston College.

"Now if you went and bought an inflation-indexed annuity, then that $120,000 is going to give you about $575 a month," says Anthony Webb, Ph.D., a research economist at the Center for Retirement Research.

Though Social Security will play a role, it only replaces about 40% of the average worker's income, according to the Social Security Administration.

Where Are Things Going Wrong?

The numbers are daunting, but getting to retirement requires putting a pen to paper, or using an online calculator such as Bankrate's, to determine how much retirement will cost.

"Many people have 'lump sum' illusion -- they think they can live 40 years on a 401(k) account amounting to $100,000, and they simply don't realize what the risks are of a very long lifetime, not to mention health care cost risk," says Olivia Mitchell, who wears several hats as professor at the Wharton School of Business at the University of Pennsylvania, executive director of the Pension Research Council and director of the Boettner Center for Pensions and Retirement Research.

In addition to harboring vague illusions of what it will take to retire, people seem to suffer a disconnect between what they know they need to do and what they actually do.

"There is no magic bullet to saving for retirement other than living on less and saving more," says Elliott Orsillo, CFA, co-founder of Season Investments in Colorado Springs, Colo.

And that means budgeting and controlling spending in addition to prioritizing retirement savings.

"A good starting goal would be to save 10% of one's income for retirement with the goal of increasing that percentage slowly over time," Orsillo says.

Boosting retirement contributions 1% or 2% every year is generally painless. Some employer-sponsored plans offer automatic contribution increases every year for people who prefer a set-it-and-forget-it arrangement. But for workers whose retirement plans lack this feature, it's not a huge ordeal to make an annual adjustment.

Working Longer Will Be the Norm

As so many Americans are so far behind in their savings, the new reality of retirement will likely require working longer. Beyond a certain age, simply saving more and investing better than Warren Buffett won't cut it.

The only alternative is to pour more money into retirement savings by working an extra five or 10 years, according to research by Webb and other economists at the Center for Retirement Research.

Easier said than done, but it works because, "It has a drastic effect on the amount of Social Security benefits that a household can get," says Webb.

"Now the second reason it works, when you get to 70, you have a shorter remaining life expectancy. You can draw down your assets more rapidly. The third reason it works is that you have another eight years to make contributions to your 401(k) and earn investment returns," he says.

It's never too late to start saving, but it's never too early, either. Boosting retirement contributions by just a little every year can vastly improve retirement prospects. Workers can either take a hit early in life by saving a larger proportion of their income or tack on a few more years at the end of a career. The latter option works well if they really love their jobs and they can manage to hang on.