HOW MUCH WILL I NEED TO SAVE?
Experts suggest that you will need 75-85% of your pre-retirement income to maintain your lifestyle throughout retirement. What changes in retirement would allow for this 15-25% decrease in your income? Ideally, your mortgage and other debts are paid off. If you have children, they are grown and living on their own. If this is not the case, your income replacement may need to be higher. Another change in retirement that may allow you to live on 75-85% of your pre-retirement income is that you are no longer “paying” into social security (a 7.65% tax on your wages!), and the “expense” of saving for retirement has come to an end. To achieve your retirement goal, you may need to accumulate savings and investments of 10-12 times your pre-retirement annual income. To accumulate this amount of savings and investments, you should save at least 10-15% of your income every year. Putting it all together. Based upon these guidelines, let’s assume we have a soon-to-be retiree earning $40,000 per year.
Pre-retirement income EXAMPLE
IMPORTANT GUIDELINES: 10-15% - target rate of savings and contributions to your savings and investments 10-12x pre-retirement income - target amount of savings and investments at retirement 4% - the ideal withdrawal rate from savings and investments during retirement
$40,000/yr
% of pre-retirement income needed to maintain current lifestyle Target retirement income
x 75-85%
$30,000-34,000/yr
Pre-retirement income
$40,000/yr x 10-12
Amount to save
Target retirement savings
$400,000-480,000
Avg. Social Security benefit (see pg. 4) $15,000/yr Plus 4% withdrawal from target retirement savings
+$16,000-19,200/yr $31,000-34,200/yr
Retirement income
$400,000 - 480,000 x 4% ( Annual withdrawal) $16,000-19,200 (Target retirement savings)
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