Americans aren’t saving anywhere near enough for
retirement, setting the stage for a potentially dreary time ahead for many when
they reach the closing act of their lives. In fact, a study by the
Economic Policy Institute found that almost half of American families have no
retirement-account savings at all.
While the widespread-savings shortfall is a given, a
consensus is trickier to find when it comes to advice on just how much of your
weekly salary you need to stash away if you want your retirement to be
secure.
“Opinions vary; you’ll hear some people say 10 percent,
you’ll hear others says 15 percent,” says Rick Rivera, a partner at Safeguard
Investment Advisory Group (www.safeguardinvestment.com).
“Some people say you need to have saved $1 million by the time you retire, which
is a tall order for a lot of people.”
Clearly, something is better than nothing, but following
some general rule of thumb for saving could lead you astray, Rivera says.
Everyone has different circumstances, goals, and objectives.
“What your neighbor needs and what you need may not be
the same thing at all,” he says. “You need to take a look at your own financial
situation and at what a good retirement would look like to you.
Rivera suggests a few things to consider on the way to
zeroing in on the right savings amount:
• Figure out what it is you plan to do in
retirement. Do you want to travel or spend a lot of time golfing? Is
there a hobby you enjoy? Maybe you want to spend time as a volunteer. “Once you
have an idea what it is you want to do,” Rivera says, “you’ll want to consider
the expenses related to those activities.” That means creating a budget and
determining the amount of monthly income you’ll need to do the things you want
to do.
• Review your potential income sources. Will you receive Social Security? Is there a monthly pension check in your future? Although it’s becoming much less common, some people have great pensions, so they don’t need to save as much. Most people, though, don’t fall into that category, so they need to focus more on saving to cover the shortfall.
• Do the math. If, for example, your pension and Social Security add up to $4,000 a month, but you’ve determined you’ll need $6,000, then you know you’ll need to make up that $2,000 shortfall from your savings. Based on your age and an estimated rate of return, a calculation can be made to figure out how much you’ll need to save to accomplish your goal. A young person, obviously, could save a smaller percentage of their income than someone who’s just 10 or 15 years away from retirement.
• Review your potential income sources. Will you receive Social Security? Is there a monthly pension check in your future? Although it’s becoming much less common, some people have great pensions, so they don’t need to save as much. Most people, though, don’t fall into that category, so they need to focus more on saving to cover the shortfall.
• Do the math. If, for example, your pension and Social Security add up to $4,000 a month, but you’ve determined you’ll need $6,000, then you know you’ll need to make up that $2,000 shortfall from your savings. Based on your age and an estimated rate of return, a calculation can be made to figure out how much you’ll need to save to accomplish your goal. A young person, obviously, could save a smaller percentage of their income than someone who’s just 10 or 15 years away from retirement.
“Depending on just how close you are to retirement, you
may even have some catching up to do,” Rivera says. “This is why I say that
following a general rule in a vacuum isn’t the best idea. It may or may not get
you where you need to be.”
About Rick
Rivera
Rick Rivera is a partner at Safeguard Investment
Advisory Group (www.safeguardinvestment.com) and
has more than two decades of experience in the financial industry providing
guidance to those planning for retirement. He is an investment advisor
representative holding a series 65 license, as well as Life-Only and Accident
and Health licenses in California.
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