AARP: "retirement nightmare" looming for middle class

In the past couple of years, Americans have seen their incomes fall and savings diminish. Health care costs keep rising.

How in the world is the middle class supposed to prepare for retirement?

An Urban Institute study predicts retirees will live on a budget just over half of what they made while working. If you are in the middle class, odds are social security will account for half of that retirement income.

The average social security payment right now is just over $13,000 a year. AARP calls this the "middle class squeeze."

As bad as it is, there are ways to prepare for the day you say "I quit."

Shelly O'Brien, wife and mother of three describes her shock, when her husband brought home a recent paycheck. "With this last paycheck that we had, it was a significant amount of taxes that were taken out," said O'Brien. "My jaw just hit the floor because although I was expecting a little bit of fluctuation there, I was not expecting the big impact that we got."Middle class families like the O'Brien family spend hours at the kitchen table, going over finances, managing their budgets, working toward one day, being able to retire. "Retirement, what's retirement?" jokes O'Brien. "Because when you look at the grand scheme of things, we're trying to make it month to month."

John Pelham, a certified financial planner with Nowlin & Associates in Homewood suggest getting started by taking small steps.

"The important thing is to continue to get your savings rate up. The average savings rate is five percent. Most people should be saving ten percent of their income. Ten percent is what it's going to take to be able to retire comfortably," Pelham explains.He goes on to say, "Increase (savings) by one percent this year, another one percent next year. That way, it doesn't sting as much, you don't lose a ton of income."Pelham says mapping out finances, and planning, are critical to one day reaching that goal. "You need to budget yourself. You need to have a written budget. It's incredibly important to have a sound financial plan. It's even more important if you are within 10 years of retirement," says Pelham.