Q: Will I Ever be Able to Save Enough For Retirement?
— Approaching Middle-Age
A: Dear Approaching: Articles that are written about retirement savings needs usually paint a picture that leaves the reader asking this very question. These articles are often unrealistic in that they 1) assume an excessive retirement spending level, and 2) assume the retiree will never receive Social Security benefits.
A study by Dimensional Fund Advisors of Austin, Texas found that, for most people, a simple formula for retirement saving can be used that puts the challenge into perspective. First, one must identify a target annual retirement income. This can be established as a percentage of working income. The study found that the more money a person earns working, the lower the percentage of that amount that is needed for retirement.
People who earn between $50,000 and $87,000 per year need a retirement of about 62% of that amount. Those making under $26,000 need up to 82%. The good news for the lower earners is that Social Security benefits will make up a larger share of their needed retirement income.
Once the annual retirement income estimate is set, then the Social Security estimated benefit should be subtracted from that amount. After that, any anticipated guaranteed pension income, such as an employer plan, is deducted. The amount left should be multiplied by 25 to arrive at a gross amount of savings to be accumulated by the time of retirement. That allows one to determine how much to save based on the types of investments to be used.
The takeaway from all this is that saving for retirement is not that daunting of a task. Half the battle is simply starting to save in a vehicle that makes the money hard to access. And, at the same time, start looking at how you can earn money in your retirement years doing work that you find enjoyable and helps people with the knowledge and experience you’ve gained during your lifetime.
Contact a Personal Family Lawyer® to discuss ensuring you and your family are provided for in retirement. They can utilize the Family Wealth Planning Session™ to review your existing plan and help you make adjustments that will help you achieve your goals.