How Much Should I Be Saving for Retirement?
November 24, 2011, By Mark Meissner 0 comments
"Wells Fargo Survey Says 80 May Be the New 65 for Retirement Age" a recent Business Week article proclaimed. Given that life expectancy for Americans is now at around 78, the new survey statistics are downright scary. I'm looking forward to traveling the world before—and after—retirement, without financial worries. No doubt you, too, are looking forward to some days of ease after a long career of working. But there's no guarantee. My late grandfather worked until he was in his 80s as a mechanic. Climbing in and out of greasy engines was not likely the way he envisioned his last years.
Still, setting up a a simple retirement plan right now will go a long way to helping make your golden years truly golden. Far too often, people make retirement planning, like investing, way more difficult than it should be. Begin with writing down your age and how much savings and/or investments you currently have. Then, pick an age you want to retire, determine how much money you will need when you retire, and work backward to determine how much you need to put away and/or invest from each paycheck.
Keeping it simple will provide you with a decent starting point to determine if when you want to retire is aligned with when you will be financially able to do so. After this simple exercise, if you determine, based upon simple calculations, that your retirement age isn't possible, readjust your assumptions. Pick a different retirement age or determine how much more you will need in additional savings and investments each paycheck.
You can always reevaluate down the road as you get closer to retirement to determine if you're on track. Instead of getting tied up now in excruciating detail surrounding your retirement with taxes and inflation and social security income and such, start with the basics, make some assumptions, set some goals and milestones and put your saving and investing on auto-pilot.
A Scenario
Let's use a fictional situation to explore the questions about saving for retirement. Meet Mike. He's 30 years old, he hasn't saved a dime yet and he wants to retire at 50. He makes about $50,000 a year. Is his plan retire even feasible? Here's what Mike should do to find out: estimate how much it will cost for him to live after retirement and how long he believes he will live after he retires. Then he must estimate how much he can sock away and invest.
Mike determines that to keep his current lifestyle in retirement he will need about $2,000 per month or $24,000 per year. He believes his house will be paid off by 50, and his expenses will go toward paying for utilities, medical expenses and occasional travel. Based upon the current male life expectancy of 75, he expects to need that same amount of income for 25 years. However, he wants to build a cushion of 10 years in case he lives to 85, so he will need $24,000 per year for 35 years or $840,000 by the time he hits retirement.
