From Eduardo Porter's column in the New York Times:
... Consider the following calculation by James Poterba, a professor of economics at M.I.T.
If inflation-adjusted investment returns averaged 2 percent a year — not an unreasonable assumption given low interest rates and a stock market likely to deliver subpar returns over the next decade or so — a worker would have to save almost 15 percent of each paycheck for 40 years to get an annuity stream equal to half of final earnings at retirement, assuming a 2 percent risk-free rate of return. A late starter who saved for only 20 years would need to set aside a full third of earnings.
Matters would be easier if investments yielded 4 percent: With a 4 percent risk-free rate, affording an annuity equal to half the last paycheck upon retirement would require saving less than 10 percent for 40 years, or just over 25 percent for 20.
How does that compare with what workers actually save? From 1990 to 2010, the typical contribution to 401(k) accounts ranged from 4.7 to 5.2 percent of earnings. ...