According to AARP It all depends on what you’ve saved and how well you wish to live.
Like eating vegetables and exercising, saving for retirement is one of those things that is all too easy to put off for tomorrow. But the longer you wait to start saving, the more you have to save every year – and the higher the risk that you won’t be able to retire at 65 or even for years after that. Should you have 10 percent of your monthly pay transferred directly into a 401k or IRA? Should you pay off all debts before starting to save? Should you aim for a nest egg of $1 million to $1.5 million, or savings that amount to 10 to 12 times your current income?
For people approaching retirement, those questions can be a source of panic, denial and dread. But the truth is, the perfect retirement number is different for everyone. It depends on factors such as how you live, where you’ll live, how healthy you’ll be as you age, how long will you live? While there may be no magic amount you should try to attain, there are some questions you should ask yourself to find your optimal “number.”
Little known savings fact: Don’t wait to save for retirement until after you have saved for your child’s college education. Scholarships, grants and student loans can help with college tuition, but there are no such options for retirement.
What will your living costs be? The first step is to figure out how much you’re spending now. Start by creating a budget to track your expenses. One rule of thumb is to have 70 to 80 percent of your preretirement income after you finish working. But some financial planners are now suggesting that might not be enough – recommending at least 100 percent of preretirement income each year for at least the first 10 years after you stop working. Spending doesn’t necessarily slow down in early retirement. In fact, many new retirees ramp up spending to travel or relocate.
Retirement Facts: Did you know? • Fewer than half of Americans have calculated how much they need to save for retirement. • In 2012, 30 percent of private industry workers with access to a defined contribution plan (such as a 401(k) plan) did not participate. • The average American spends 20 years in retirement.
Will your nest egg last as long as you will? Many people don’t consider longevity when they set savings goals. People are living longer and that makes retirement planning even more challenging. Consider this: a healthy, upper-middle-class couple who are 65 today have a 43 percent chance that one or both partners will live to see 95. Retirement savings must be adjusted accordingly.
Will your savings generate enough cash? There is no way of knowing what will happen to interest rates or inflation in the future. But for a retiree to generate $40,000 a year after stopping work, he or she will need savings of about $1.18 million to support a 30-year retirement; this is calculated using average returns of 6 percent and inflation at 2.5 percent, according to Morningstar, a Chicago-based investment-research firm.
What if I haven’t saved enough? Saving enough for retirement can seem out of reach and overwhelming. No matter whether you are entering your 30s or 40s with years in the workforce ahead of you, or in your 50s and already counting the years until you can join the ranks of the comfortably retired, the best thing you can do is save, save, save! You can actually double your nest eggs in the last decade or so of your working lives, thanks to compound interest, but you must keep saving. Make some preretirement changes like going from two cars to one, tighten your household budget or cut back on travel to keep spending low and allow for greater savings as you near retirement.
For more about saving for retirement and where to turn for financial advice and planning visit, www.aarp.org. Source: AARP; How Stuff Works.