How Much Should You Already Have Saved for Retirement?

August 2, 2017

 

If that headline scares you, skip this article.  Not really-it’s likely not as bad as you think.

 

This question plagues the financial planning thoughts of newcomers to the work force as well as those in the middle of their careers.  The good news is, thinking about the question can actually be helpful. According to a recent Wall Street Journal article, research done on students at the University of Waterloo in Ontario found that those prompted to monitor their savings progress were more successful.

 

Sophisticated financial planning software can help you make and monitor a good plan, but the software can be expensive. Hiring a financial planner with some software skills is likely a good course of action.  In lieu of that, some ball park estimates might prompt you to consider your planning with more focus.

 

Fidelity Investments has devised a shortcut to use as a starting place.  They suggest that a person who starts saving by age 25 and expects to retire at 67 (full Social Security age) should have saved an amount equal to their annual salary by age 30. They suggest three times salary at age 40; six times at 50; eight times at sixty and 10 times by age 67.  This dictates a savings rate of about 15% of earnings each year but also warn that this only supplies about 45% of pre-retirement income, and it only can be useful to those earning from $50-300,000 per year. Social Security makes up the balance of your likely retirement income needs in this example.

 

Your savings rate and other projections can be fine-tuned with the help of an expert such as a Certified Financial Planner™.  Also, projections assume you don’t bail out of investing in tough times and have the discipline to rebalance your portfolio periodically.  Experts can help you there as well.

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