THE NEW RULES OF RETIREMENT SAVING • 61
Building Your Stool Remember the three-legged stool from Chapter Three? Your grandparents and maybe even your parents had it. Their retirement savings was made up of (1) employer contributions (through a pension or very high 401(k) match); (2) government contributions (through Social Security) and (3) personal contributions (through their personal savings). As previously discussed, you will most likely have a one-legged stool, and that’s hard to keep balanced. Unless you’re a teacher or firefighter, you probably don’t have a pension. Most of us don’t have a high — if any — employer match to our 401(k). So the em- ployer contribution leg is gone, or at least structurally weakened. And the demographics for Social Security don’t look good. If you are under the age of fifty, there’s a very real chance that Social Se- curity as we know it today won’t be around when you’re ready to retire. So the government contribution leg isn’t too strong either. That leaves your personal savings leg. The rest of this chapter is about how to build a personal savings leg that is strong enough
to hold up your entire retirement income needs. Sound unbelievable? I promise there’s a way.
How Much Should I Save? There’s a rule of thumb you might have heard: save 10 percent of your income for retirement. If you make $80,000 a year that means you should be saving $8,000 a year. But here’s a secret most people don’t know: 10 percent a year is based on an employer match. Experts really advise that you save 15 percent a year of your salary. They’re just assuming that 5 per- cent of your savings is coming from your employer. If you have an employer matching 5 percent or more, by all means save 10 percent of your salary. But if you’re like the major- ity of savers with no or low corporate match, then you really need to be saving closer to 15 percent.
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