Retire early with a nice, fat lump sum to fund your retirement? You've got to be kidding. For most baby boomers it will be challenge enough just to retire debt-free.

While government and the super industry debate about whether 9 per cent compulsory super will be sufficient for the average worker, the generation that missed out is reaching "that age" with inadequate super and virtually no chance of catching up.

An associate professor at NATSEM at the University of Canberra, Simon Kelly, says the average super account balance for males aged 60 to 64 is just $135,000. For females, it is less than half that - $62,000.

If you'd like an income of at least $50,000 in retirement, that doesn't come close. Including the age pension, the average male retiring at 65 with $135,000 could fund their desired income for less than three years before relying solely on government benefits.

But even that's overstating the case. Kelly says the "average" figure is highly skewed by a few individuals with very large super balances. He says the median account balance for men is $33,000 and for women it is zero. That's right - at least half the women in this age group have absolutely no super.

The figures for 50- to 59-year-olds are not much better. Kelly says the median account for men in this group is $44,000 and $10,000 for women. It makes a joke of super's role in providing an income in retirement. For many of these people, Kelly says, their super will be swallowed the moment they buy something. For many retirees, buying a new car is the first thing they do with their money - and the average woman doesn't even have enough to do that.

To make matters worse, he says a growing number of people will retire with debt. Previous generations, which tended to distrust debt, may not have had a lot of super but most retired with their mortgage and other debts paid off.

But baby boomers and subsequent generations have grown up with debt and maintain debt later in life. Kelly says they are also the "sandwich generation", with adult children and-or ageing parents to consider. Borrowing to fund costs such as house extensions is not uncommon as they near retirement.

In a 2008 report for AMP, NATSEM found the number of people age 60 or over and still paying off a mortgage had doubled in 10 years (9.5 per cent in 2005-06 compared with 4.2 per cent in 1995-96). This age group also had the biggest jump in housing stress, up about 80 per cent from 5.3 per cent in 1995-96 to 9.5 per cent in 2005-06.

"Unlike their parents, who regarded debt as evil and to be paid off as quickly as possible, many baby boomers are carrying debt into their retirement years as well," says the national manager for advice development at IPAC Securities, John Dani. "Most of that debt is in the mortgage. It's the result of constantly upsizing to a bigger or better house or moving to a better suburb as a reward for all that hard work. It's also due to the advent of home equity loans, which allow borrowers to draw on their home equity for renovations or to take a world trip."

The harsh reality is that for many baby boomers, the first call on their super payout will be paying off debt, not setting up a portfolio to provide an income through retirement.

"There used to be a myth that retirees would blow their lump sum on a caravan or overseas trip," says the managing director of superannuation for Russell Investments, Steven Schubert. "But the reality for the majority is that if they do blow the money it will be on things like paying off debt - and it's hard to argue against doing that. People also use those early retirement years to set themselves up by doing things like replacing cars and whitegoods so they won't be breaking down when they're 75. That's also a reasonable thing to do.

"But if you have a $100,000 lump sum but pay off $20,000 debt and you want to upgrade your whitegoods and car and keep some money aside for a rainy day, there's not a lot left."

Kelly says many baby boomers have become used to a comfortable standard of living and won't take kindly to curbing their lifestyle. "A lot of them have two incomes and may be living on something like $100,000 a year," he says. "But if they have to use their savings to pay off debt then live on the age pension it will be quite a severe drop for them."

The chief executive of the Australian Institute of Superannuation Trustees, Fiona Reynolds, says the debate about super often overlooks the fact that there are haves and have-nots. The have-nots are generally workers closer to retirement who have not had the benefit of super all their working lives and women, who typically earn less and spend more time out of the workforce.

The institute's modelling shows the average annual compulsory super rate for olders workers - indeed for probably half the current workforce - is 5 per cent or less, well below the 9 per cent for a full working life that the government uses in its modelling. In some cases, for women that have taken time out of the workforce, it is 2 per cent or 3 per cent.

Kelly says male white-collar workers are "probably OK" as many had super before it became compulsory and have saved over longer periods. But blue-collar workers and women are in greater strife, particularly women - many of whom have only returned to the workforce in their later years and tend to work in part-time or casual jobs.

The Investment and Financial Services Association recently estimated the average Australian was underfunded by $73,000 - though the situation is much worse for the "have-nots" than for those with substantial super savings. Rice Warner Actuaries, which conducted the IFSA research, says underfunding is not surprising when you realise you need to contribute 20 per cent to 30 per cent of salary during a full career to provide a defined benefit lifetime pension of 60 per cent of salary in retirement. For most of us, that's impossible.

To guarantee a comfortable living in retirement, it says, middle-income workers would need to build a super account worth as much as their family home. For most, this is not practical and they will need to retire later or adjust to a lower income in retirement.

Dani says many people have the false belief that their expenses will magically halve when they stop working, so they don't have to worry too much about retirement savings. "The reality is you spend as much, if not more, in the first few years of retirement," he says.

The graph, from Rice Warner, shows incomes (and spending) drop substantially from age 65, with many being limited to the age pension. It says there is also a trend for self-funded retirees to spend their super in the first 10 to 15 years of retirement before relying on government benefits.

However, many surveys show future retirees have much higher expectations, with most saying they will need incomes of $40,000 or $50,000 or more.

Schubert says a rough rule of thumb is that you need $20 to $25 of savings for every $1 of annual income you want in retirement if you're planning to live to the average life expectancy and you want to protect your income against inflation. So that $50,000 income could require $1 million-$1.25 million. But he says this isn't quite as scary as it sounds. Whether we like it or not, most retirees will continue to get a fair chunk of their retirement income from a full or part age pension. The government's own estimates show 75 per cent of retirees will still get a pension in 40 years' time; the only difference super will make is more will be receiving a part pension rather than the age pension alone.

Schubert says the critical thing for over-40s is to be putting aside what money they can. "While saving may not get you to what you'd ideally like, the combination of saving and a part pension will allow you to achieve a modest income," he says.

He says people "shouldn't be fooled into thinking there is a magic investment that will provide higher returns and turn around their savings shortfall". Unfortunately this usually results in investors taking risks they can ill afford and can make them worse off.

Dani says repayments on non-deductible debt, such as a mortgage, is one of the best investments you can get. As the family home is also exempt from capital gains tax, and the age pension income and assets tests, it is also attractive from a tax and benefits point of view. Schubert says whether or not you own your home is a big contributor to how well off you are in retirement. While non-home owners get a higher pension, he says it is not enough to compensate for the added costs and lack of security in not owning your home.

But he says if you end up with a $600,000 house and just $50,000 in savings to live on, you might need to rethink how your assets are weighted. Downsizing may be an option - though there are costs in doing so that may outweigh the benefits. Kelly says reverse mortgages, where you borrow against the equity in your home, may also appeal more to the baby boomers than to their parents, however Schubert says they should be treated with caution.

"I wouldn't plan on pulling out $100,000 and building up a big debt early in retirement but they may play a role in supplementing your income as your investments start to run down," he says.

If you're counting on an inheritance to get you out of trouble, Dani's advice is simple. Don't. He says modern medicine has transformed many fatal conditions into chronic illnesses that will eat away at the pool of available funds. With life expectancies growing, you may also find that inheritance is further off than you expected.

Dani says the reality is many people are going to have to work longer to have any chance of living comfortably once they stop working. Fortunately, there is already a growing "abhorrence" of the idea of a traditional retirement as many people start to scale down their working hours rather than quitting the workforce completely.

"Working well into your 60s will become more and more the norm," he says. "Not purely for financial reasons but because of the skill base and knowledge older workers have to offer."

But Dani says it also makes sound financial sense. "We call it the positive double-whammy," he says. "Not only are you continuing to accumulate super and allowing it to compound but you're not drawing on your capital to live on. Our rule of thumb is that every additional year of work after 55 adds another three to four years to the life expectancy of your capital when you retire."

Don't fancy working any longer than you have to? Then maybe this will persuade you. As John Dani of IPAC Securities points out, working longer gives a double financial benefit. Not only are you putting off the date when you start to spend savings but you're continuing to save and enjoying compounding returns while you do it.

To show what a difference it can make, IPAC's head of technical services, Colin Lewis, looked at the case of Jack and Jill, both 57, who are hoping to retire at 58. They spend $52,000 before tax and want to maintain this through retirement.

Jack earns $80,000 and Jill $50,000. They get the 9 per cent super and own their house.

They can save $50,000 a year after tax and decide to save $30,000 through Jack salary sacrificing into super and $20,000 outside super.

Jack currently has $135,000 in super and Jill $50,000.

If they stop working at 58, Lewis says, they will have $250,000. But if they want to live on $52,000 a year, they will run out of money at age 72 and will have to rely on the pension. That's even after assuming they get benefits until then and only draw on their capital to reach their $52,000.

But if they retire at 62, says Lewis, their savings will have grown to about $544,000. They can fund that $52,000 income (using their capital and a reduced level of Centrelink benefits) to age 92.

How the numbers stack up

Did you know that of every dollar of private savings you spend in retirement, just 10 cents will comprise contributions made while you were working? Thirty cents will

come from investment earnings before you retire and 60 per cent will come from post-retirement investment returns.

Staggering, isn’t it? But according to the Russell Investments managing director of superannuation, Steven Schubert, this is roughly how the numbers stack up for someone who has saved over a full working life.

He says it shows the high importance of investing well in retirement. A poorly constructed portfolio, or sticking a large amount of your money in a ‘‘sure thing’’ that

goes bad, can have a devastating effect on your standard of living.

"People forget that when they reach retirement theymay have stopped being a saver but they’re still an investor," Schubert says.

But the bad news for the underfunded baby boomers is that the rule of thumb only stacks up if you have been saving and enjoying the benefits of compound interest.

‘‘It doesn’t mean saving isn’t important. If you don’t have money in the system the whole thing stops working. You can’t make something from  nothing,’’ Schubert explains. His advice to those approaching retirement? Save what you can while you have the opportunity. You may not get all the way to where you want to be but you’ll still be better off than you would have been.