How to Calculate Your Retirement Number

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Published March 05, 2013

| LearnVest

Are you saving enough for those Golden Years?

If you believe most studies, the simple answer is probably no.

What’s more, according to a recent Ameriprise Financial analysis, there’s a significant “emotional disconnect” between the retirement goals of many Americans (say, a cushy lifestyle packed with travel) and their current retirement realities. News flash: It’s a gap of about $250,000 between what they have saved and what they’ll need to support said cushy lifestyle.

Intrigued by these findings, we decided to do a little research of our own. In a nationwide survey conducted by LearnVest and Chase Blueprint, we spoke to men and women in a variety of age ranges to find out how much they currently have squirreled away for retirement. Then we asked experts to weigh in on the results, as well as answer one very important question: Are we saving enough for retirement?

Carla Schwartz, 30, Policy Development Manager

Survey Says: Women between the ages of 25 and 32 admitted to having an average of $37,000 in their retirement accounts.

Carla Says: “I consider myself lucky: I’ve been saving responsibly for retirement for a long time. The amount of money that women in my age bracket have saved seems about right—and I’m actually a little above that, thanks to my company’s generous 401(k) matching policy. I was eligible to start participating in the plan after six months with the company, and I’ve been working there for nearly six years now. When it was time to decide whether to enroll, my colleague who handles our retirement plan said something along the lines of, ‘Officially, I can’t tell you what to do … but I’m not letting you say no.’ I’m so glad she did!”

The Expert Says: “Saving for retirement needs to be a priority, particularly for women,” says Lori Cathey, a director at TIAA-CREF. “Women typically need to save more for retirement because they live longer than men, on average, which means more in health and dependent care expenditures. Plus, women have fewer years to save due to fewer overall years in the workforce—although their participation in the workforce has increased, many continue to be the primary caregivers for children and other family members.”

For someone Carla’s age—who expects to retire around 65, with an income of about $40,000—$37,000 is a little low. Someone in this situation would be better prepared with savings in the mid-50s, Cathey explains.

Robert Woodill, 49, Food Services Manager

Survey Says: Men aged 25 to 54 admitted to having an average of $220,000 socked away for retirement.

Robert Says: “At my age, $220,000 would be very low. I’m a little behind in retirement—everybody took a hit a few years back—but I’m close to where I want to be right now. I currently have more than double this number saved. I still doubt that I’ll be able to retire around 60, like I’d originally planned, but I intend to increase what I’m putting away every year … and I have hope.”

The Expert Says: “Robert sounds like most men his age,” says Ellen Derrick, CFP® with LearnVest Financial Planning. “At 35, you may still be paying off college loans, starting a family or trying to buy a home—and these things all take money! Retirement (because it’s so far away) sometimes takes last place in the conversation, even though it should be at the top of your list.”

Derrick explains that a 50-year-old, with only $220,000 saved for retirement, might seem behind, but by contributing the maximum to his 401(k) each year (including catch-up contributions), he could double his planned retirement income by 67.

Mary Fran Blisard, 56, Speech Pathologist

Survey Says: Women between the ages of 45 and 54 admitted to having an average of $219,000 saved in their retirement accounts.

Mary Fran Says: “This number seems low to me. I don’t have that much saved, but I do have a pension, which provides an income to meet my living expenses adequately. I also have money in real estate investments. I’ve essentially retired at this point from my regular job, but I’m still working part-time to supplement my retirement future. Based on my savings, I feel comfortable that I’ll be able to retire with an income that’s relatively close to what I’m accustomed to enjoying.”

The Expert Says: “Having the ‘right’ amount saved up by a certain age is all relative,” explains Derrick. “If you’re 45, and live quite happily on $50,000 a year now, you may feel very comfortable with having $219,000 saved for retirement. Ongoing contributions of just 3% of your gross salary might work out to a retirement income of more than two-thirds of your current paycheck by the time you reach 67.”

However, Derrick cautions that if you’re 54 and currently making $100,000 a year, you may find that $219,000 plus the same 3% contribution rate only gets you about a quarter of your current income in retirement—and that may be less than desirable. “Mary Fran is right to fold her pension into the equation, which is what a financial planner would do when helping you to consider what your target should be,” says Derrick.

So How Much Should You Have Saved Today?

The amount of money that you’ll need for retirement will vary widely based on a number of factors, including your average salary and goals for retirement.

In most cases, an asset-to-salary ratio is used to determine if a person is saving enough for retirement. Using these guidelines, Cathey suggests the following in retirement savings for a person with a $40,000 salary, who expects to retire at 65:

  • 30 years old: approximately $56,000
  • 40 years old: approximately $112,000
  • 50 years: approximately $180,000

“It’s tempting to delay saving for retirement until you have a bigger salary, but the earlier you start, the more money you’ll have due to compounding,” she says.

If, like Carla, you have a workplace retirement plan, such as a 401(k), check to see whether your employer matches the money you contribute. “That match is additional compensation given to you just for socking away money for retirement,” says Cathey. Translation: By not contributing to an account with a company match, you’re passing up free money!

URL

http://www.foxbusiness.com/personal-finance/2013/03/05/how-to-calculate-your-retirement-number/