What we earn on our savings is really important.

Yes, I bet you knew that. But you may not know just how massively important returns will be over your lifetime of accumulating and spending. So let’s start to measure. There are lots of ways to do this, some quite elegant. But we’ll try easy and simple before we go for elegant. How simple? We’ll do it all with a hand-held calculator.

Let’s begin with the realities of accumulating and then spending the money we’ve saved. If you’re fortunate, you’ll be able to save for about 40 years. That assumes saving from age 25 to age 65. Some people (most) start later. If you start late, you’ll need to save more because you’ll have less in returns.

When we retire saving usually stops. Then we depend on what we’ve saved and on the earnings of our savings for as long as we live.

Most of the money we spend won’t be what we originally saved. It will be the interest, dividends, and capital gains on the original savings. It will be interest, and interest on interest.

Here’s a modest example. Suppose you save $100 a month for 40 years and earn 4 percent, compounded. After 40 years you will have accumulated $118,196 if it was allowed to accumulate tax free or tax-deferred. If you then invested that amount in a 30-year note at the same interest rate, it would pay you $564.29 a month for as long as you are likely to live--- to age 95.

So your $48,000 of actual savings (480 months x $100) will turn out to provide you with $203,143 of spending money. This means every dollar you saved provided you with about $4 in retirement spending.

Now let’s assume a higher return. If you save the same amount but increase the return to 6 percent, you’ll accumulate $199,149 in 40 years. Invested in another 30-year note at 6 percent, you’d receive $1,194 a month or a total of $429,840 over the next 30 years. This means every dollar you saved became about $9 in retirement spending.

Note the difference, $4 versus $9.

But let’s go a step further and assume an 8 percent return. Over 40 years your $48,000 in savings would accumulate to $349,101. Invested in a 30-year note at 8 percent, that amount would provide a monthly payment of $2,562 and a total of $922,169. You would have nearly $20 of retirement spending for every $1 you saved.

Whether you had $20, $9, or $4 to spend for each dollar you saved depends on what your saved dollars earned in return. That’s a gigantic difference in retirement spending.

At this point I’m sure many readers have raised their eyebrows or rolled their eyes. Such returns are impossible! Can’t get them! Never existed!

Well, that’s a long discussion. For the record, if you had started saving $100 a month 40 years ago and had followed my slothful Couch Potato investing path, putting half your money in the U.S. stock market and the other half in the U.S. bond market, your return would have been 9.2 percent a year and you would have accumulated $432,504. That’s not very far behind the 10.66 percent annualized return of the S&P 500 over the same period.

Will we enjoy such high multiples of our savings dollars in the future? Probably not. Interest rates are pathetically low, thanks to the Federal Reserve zero interest rate policy. Stock dividends are small beer. And future capital gains are, well, uncertain. So it’s likely that a savings dollar of today, going forward, won’t become $20. Indeed, it might become as little as $4 of retirement spending.

For better or worse, we aren’t alone in this. Every pension fund in America faces the same dilemma. They’re counting on returns that will bring a high multiple of spending for each dollar invested. Ditto the companies that sell Long Term Care Insurance. It’s no exaggeration to say that most Americans have most of their future riding on the multiple of savings that will be achieved going forward.

Is it possible to get ready? Yes, we can save more. Owning a house is more important than ever. And spending less money, carefully, will be a highly prized skill.