Monday, December 20, 2010

How Much Do You Need For Retirement?

How much money will you need to retire?  It is a hard question to answer!

Retirement - it is sooner than you think.  Each year of your life seems shorter, because, as a percentage of your overall life lived to date, it is.  So when you are ten years old, a year is 10% of your life.  At age 50, it is 2%.  It is not your imagination, the years are flying by.

So how much do you need to save?  Tough question, as everyone's situation is different.  There are a number of factors to consider:

1.  Do you qualify for a retirement plan?  Few people today have the fixed pensions of our forefathers.  Unless you work for a government entity (and even then) or have a unionized job, chances are, you have to save money, in a 401(k)-type plan to retire.  But if you do qualify for a pension, then factor that into your retirement income.

2.  How much do you need to retire?  Many pundits use flat factors, like 60% of your present income level.  Again, this number could be all over the map.  If you own your home, free and clear, at retirement, you will need a lot less to retire than if you have a mortgage.  Once you get off the money and status bandwagon, you may find that you can live on not very much.  Some of us do this by choice.  Others will be forced to, in retirement.

3.  How much Social Security will you get?  Those projections you get in the mail may be a bit bogus, as between now and when you retire, they will undoubtedly twiddle with the numbers - and not in your favor, either.  But if you worked a number of years, chances are, you will collect a good sum.

4.  How much do you have saved now?  The old adage is that you should save about 10% of your income for retirement, every year.  So if you make $100,000 a year, you should be putting at least $10,000 into your 401(k) for retirement.  Of course, you should max out this contribution, if possible.

There are a number of retirement calculators out there and this one, from CNNmoney is probably as good as any.  All are suspect, though, as they are based on "average" people's situations, and few, if any of us are average.  But it is a good way to start thinking about retirement and get some ideas on how much you will need, down the road.

And of course, there is no such thing as over-saving, is there?  If you want to have a comfortable retirement, as opposed to one marked by penury, you should put aside as much as possible.

And even though retirement might be years away, it never hurts to get into a retirement frame of mind - figuring out how to live a better life with less money - the very point of this blog.  If you can live and think like a retiree, it puts your spending practices into sharp focus.