However, starting late is better than not starting at all, and this is particularly true for workers who begin saving with "programmed increases" in mind.

How Programmed Increase Savings Works Programmed increase savings is an approach that recognizes how difficult it is to begin saving 6, 8 or 10 percent of pay right out of the blue. So, late savers could start by saving a mere 2 percent. Two percent per year will not finance a luxurious retirement at age 65, but at least it's a start. If workers start programmed increase savings when they receive a regular pay increase, they are just "saving part of their raise." Saving part of a raise may mean that workers must cut back their standard of living, but the cutback may not be significant, and it may get easier as children leave the nest.

For example, suppose hypothetical employee Bob receives a 5 percent pay raise and saves half of it. He still receives a raise; it's just smaller than it would be if he didn't save at all. The beauty of "getting started" is that the process can repeat itself next year when Bob gets another raise. With a little bit of planning (and regular raises), he could increase the initial 2.5 percent of pay to 5 percent, and a year later to 7 percent, etc.

The goal is never to have to take a significant "pay cut" to increase savings. However, savers must learn to live on a slower rate of pay growth, and depending on the rate of inflation, may need to live on less from year to year. And in our consumer-oriented society, this may not be easy. The payoff, however, will be greater financial security later in life and the opportunity to retire in relative comfort.

Late savers need to keep the following caveats in mind:

* They will not be able to retire at the same standard of living as those who started saving sooner. With programmed increase savings, however, workers adjust to a new living standard gradually, instead of being thrown into it all of a sudden.

* Programmed increase savings depends on continued employment, continued pay growth and a low rate of inflation, none of which can be taken as givens.

Advantages to Programmed Increase Savings There are several key advantages to programmed increase savings:

* It's a start.

* No single increase is so large that it requires a significant reduction in the worker's current standard of living.

* Workers get used to living with a slower rate of pay growth.

* It works. Workers will be able to retire at a higher level of income than they had ever thought possible.

Programmed Increase Savings in Action Let's say Bob is 45, has saved nothing for retirement and makes $30,000 a year. But he has received (and hopes to continue to receive) a 5 percent pay raise each year. Bob makes the commitment to start a programmed increase savings schedule of one-half of each year's raise. Although he may not be able to improve his standard of living, Bob does not have to significantly cut back his regular activities.

By the time Bob retires at age 65, his base pay will have grown to $76,000 a year. But since he is now saving 33 percent of his salary, his living standard is based on 67 percent of this amount, or $51,000 per year. Note that 33 percent is well beyond qualified plan limits, so Bob has continued his saving habit even after reaching plan limits. Assuming 8 percent investment return, his savings will have grown to $365,000 - more than seven years of Bob's "living standard" pay.

Social Security's Role Under current Social Security laws, someone at Bob's pay level would expect a Social Security benefit of about 35 percent of preretirement pay. However, most analysts believe that Social Security cannot continue without changes, and thus future benefits will represent a smaller portion of preretirement pay. Assuming that Social Security replaces 80 percent of what it does now, Bob can expect a Social Security benefit of 28 percent of pay as opposed to 35 percent. This 28 percent of his full $76,000 pay level produces a benefit of $21,000, which is equivalent to 41 percent of Bob's preretirement "living standard" pay.

Retirement Is Within Reach If Bob then supplements his Social Security benefit with just the investment income on his savings (still assumed to be 8 percent during his retirement years), he can retire with a benefit that is almost equal to his preretirement "living standard" pay. And, this was starting from zero just 20 years earlier.

Programmed increase savings can help late savers reach reasonable retirement income objectives in a reasonable amount of time. This approach is no substitute for starting early, saving more and saving regularly, but at least it offers a reasonable alternative for late starters.