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do you have enough saved for retirement

Saving for Retirement

do you have enough saved for retirement


Some experts say to retire by age 67, you should have 10 times your income saved and you should aim to replace 70% to 90% of your annual pre-retirement income through savings and Social Security. For example, a retiree who earns an average of $60,000 per year before retirement should expect to need $42,000 to $54,000 per year in retirement.

Another view is to assume you will need the same level of annual income that you earn now, minus any savings. Consider that since you’ll be retired, you won’t be saving for retirement, so if you’re saving 15% of your income now, you can actually live off of 85% of your current income.

Calculating How Much You Need to Retire

Saving for retirement means you have to plan now for converting your savings into a steady stream of income that will last throughout your retirement. It’s important to map out your monthly cash flow before you retire and make sure you are financially stable before you decide to retire.

Here is a simplified formula to help calculate your retirement income needs.

  1. What are your total annual contributions to retirement savings?
  2. Multiply that number by the number of years left until retirement (when you want to retire).
  3. Add your current retirement savings to that number.
  4. Divide by the number of years you expect to live in retirement.
  5. Add that to other guaranteed sources of income.

Questions to Answer When Planning for Retirement

Your retirement savings goal takes into consideration how much you think you’ll need/spend in retirement since your current spending habits might change later.

For example, will you have your mortgage paid off by then? Some expenses will decrease in retirement like commuting costs, but other costs like travel may increase. Look at the last three years of actual spending history by category to determine how it might change during retirement.

Understanding your post-retirement expenses and income will help you estimate how much you might need.

As you begin or assess your retirement process, consider these three basic questions:

  1. How much will you need to spend to achieve your retirement goals?
  2. How much do you expect to earn from savings, Social Security and other potential sources of income?
  3. What will you do if your savings fall short?

Sources of Retirement Income

Most Americans will have Social Security as a main source of their retirement income, so you might want to postpone retirement until you can get the maximum retirement monthly benefit from SSA. Use the SSA Benefit Calculator to get an estimate of your Social Security benefits.

Additional income can come from a pension, 401 (k) account, IRAs, annuities and personal savings. Income from rental property or proceeds from selling your home or business should also be considered for future savings, as can an inheritance.

Calculate How Much Your Expenses Will Change When You Retire

Remember to take taxes and healthcare expenses into consideration. Talk to your accountant about your retirement and investment vehicle to estimate what your tax bracket might be when you retire and how your distributions might be taxed.

If you need more time to save or are still happy working at your current job, don’t stop just because you’ve reached an arbitrary age. You determine when you retire. “A job you enjoy engages your mind, offers social interaction, gives your days purpose, and creates a sense of accomplishment. All of these things can help you stay healthy and happy as you age.” Consider your employer’s health plan and compare to what you would get through Medicare.

Considering where you will retire is also important, as it may not be feasible to retire in an expensive city, because your retirement savings are not enough to maintain your current living situation.

Be Proactive and Maximize Your Retirement Contributions as Early as Possible

Starting today you can increase your contribution or savings by 1% because the power of compounding is greater the earlier you start. Know 401 (k) and IRA limits and take the catch up provision into account when saving.

Pay down credit cards and car loans to not have those monthly obligations when you retire. “Getting rid of debt, including your mortgage, also means getting rid of interest payments that can take a toll on your long-term finances.”

Budget for larger expenses too, like major repairs or appliance replacements, that may be needed during your retirement, such as a new roof or car. Try to take care of home renovations before retirement because you’ll have to withdraw the amount needed plus taxes from your retirement account to cover the expense, and that can affect the power of compounding.

To earn returns that outpace inflation, look for investment options in mutual funds or other vehicles. Remember cash or money markets which can actually cause you to lose value on your money since it does not keep up with the rate of inflation.

As you approach and enter retirement, rebalance your portfolio annually to focus on capital preservation, income generation, and asset protection. Avoid taking big risks in your portfolio.

A Summary of Retirement Planning Tips

  • Maximize your 401 (k) contributions. If your employer matches your contributions, be sure to at least contribute an equal amount that they are matching.
  • Contribute to Individual Retirement Accounts (IRA), SEP-IRA (for self-employed), 403 (b) or 457 Plan (if you work for a nonprofit organization).
  • If you’re over 50, make additional catch-up contributions.
  • Set aside some or all bonuses, raises and tax refunds for retirement.
  • Wait until you are eligible for Social Security.
    • You can begin collecting benefits as early as age 62, though it will be reduced by about 30% compared with your so-called full retirement age (currently 66 but rising to 67 for those born in 1960 or later). Once you attain full retirement age, every year you wait up to age 70 increases your benefit by 8%.
  • Plan a phased retirement with part-time work that will reduce your need to file for Social Security before full retirement age and reduce the need for withdrawals from your retirement portfolio. This also helps ease you into a more relaxed lifestyle by transitioning out of work more slowly.


Plan for Your Retirement Today

Contact one of our bankers today to discuss your savings and retirement options. HomeBank is here for you and your financial success.