Now that you have a clearer picture
of your retirement goal, it’s time to
estimate how large your retirement
nest egg will need to be and how
much you need to save each month
to buy that goal. This step is critical!
The vast majority of people never
take this step, yet it is very difficult
to save adequately for retirement if
you don’t at least have a rough idea
of how much you need to save every
Think of this as your annual “cost” of retirement.
month.
However, no rule of thumb fits everyone.
There are numerous worksheets and software Expenses typically decline for retirees: taxes are programs that can help you calculate approximately
smaller (though not always) and work-related costs
how much you’ll need to save. Professional financial
usually disappear. But overall expenses may not
planners and other financial advisers can help as well.
decline much if you still have a home and other debts
At the end of this booklet, we provide Worksheet 4–
to pay off. Large medical bills may keep your retirement
Retirement Savings to get you started.
costs high. Much will depend on the kind of retirement
Here are some of the basic questions and
you want to enjoy. Someone who plans to live a quiet,
assumptions to keep in mind.
modest retirement in a low-cost part of the country
How much retirement income will I need?
will need a lot less money than someone who plans
An easy rule of thumb is that you’ll need to replace
to be active, take expensive vacations, and live in an
about 80 percent of your pre-retirement income. If
expensive region.
you’re making $50,000 a year (before taxes), you
might need about $40,000 a year in retirement income
to enjoy the same standard of living you had before
retirement.
U.S. Department of Labor Employee Benefits Security Administration 7
SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE
For younger people in the early stages of their working retirement. A female retiring today at age 65 can expect life, estimating income needs that may be 30 to 40
to live approximately 20 years.
years in the future is obviously difficult. Worksheet 4
These are average figures and how long you
can help you come up with a rough estimate. Every
can expect to live will depend on factors such as your
year or two, review your retirement plan and adjust
general health and family history. But using today’s
your retirement savings estimate as your annual
average or past history may not give you a complete
earnings grow and your vision of retirement begins to
picture. People are living longer today than they did in
come into focus.
the past, and virtually all expert opinion expects the
trend toward living longer to continue.
How To Prepare For Retirement When There’s Little Time Left What if retirement is just around the corner and you haven’t saved enough? Here are some tips. Some are painful, but they’ll help you toward your goal.
• It’s never too late to start. It’s only too late if you don’t start at all.
• Sock it away. Pump everything you can into your tax-sheltered retirement plans and per son al savings. Try to put away at least 20 percent of your income.
• Reduce expenses. Funnel the savings into your nest egg.
• Take a second job or work extra hours.
• Make sure your investments are part of the solution, not part of the problem. To boost your returns, diversify your holdings and keep an eye on fees. But don’t take risks you can’t afford and don’t trade too much.
• Retire later. You may not need to work full time beyond your planned retirement age.