Four ways to determine how much you'll need for retirement - WDRB 41 Louisville News

Four ways to determine how much you'll need for retirement

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If you know how much money you need in the bank to comfortably retire, you're in the minority. According to the Transamerica Center for Retirement Studies, only 1 in 10 people make such a calculation. That might explain why, on average, Americans are on track to replace 50% percent or less of their income during retirement. Financial advisers generally agree that retirees need to replace 70% or more.

That means someone who brings home an $80,000 salary at the peak of his working years should save enough before retirement to generate at least $56,000 a year post-retirement. An investment, such as an annuity, that generates a 3 percent annual return would require savings of at least $2.1 million to throw off that sum annually. (Retirees can also supplement their income by continuing to work, as well as with Social Security payments and pensions.)

For those who fail to stash enough away in advance, the consequences can be dire. The federal government estimates that 12 percent of women and 7 percent of men over age 65 live in poverty. Couples fare better than single seniors. The poverty rate is highest among divorced and widowed women, at 21 percent at 15 percent, respectively.

In fact, more than half of Americans report having less than $25,000 in savings and investments, according to the Employee Benefit Research Institute, a nonprofit research organization. Just 13 percent of workers now say they are "very confident" that they will have a comfortable retirement. The first step to joining that more self-assured group is to figure out just how much money you'll need. Here are four easy ways to do just that:

1. ING. Find Your Number. Use a simple online calculator. Online retirement calculators can estimate for how much you should have in the bank before retirement. Figure out if you're on track, based on current savings rates, or if you need to ramp up.

2. TWELVE. Take a shortcut to generate a ballpark figure. John Ameriks, head of Vanguard's investment counseling and research group, recommends estimating the amount you need in retirement by multiplying your current salary by 12. "People shouldn't get too comfortable until they have a number that's 12 or more times their current salary, so $600,000 for $50,000," he says.

3. Save 18 percent. That's the savings rate a medium-earner ($43,084 in 2010) would need if he or she starts saving at age 35 and plans to retire at age 68 (assuming a 4 percent return on investments), according to the Boston College's Center for Retirement Research. The Center issued a brief that provides savings rates need based on a variety of factors, including retirement age, rate of return, income, and age that contributions begin. (The savings rates would allow retirees to replace 80 percent of their working salaries and calculations factor in Social Security income.) The Employee Benefit Research Institute reports that on average, employees contribute just 7.5 percent of their income into their retirement accounts.
The analysis found that the two most important factors for creating a retirement nest egg are one's savings rate and the age of retirement. "If people could work until they're 70, they would have a much higher chance of having a secure retirement. Social Security is higher if you wait until age 70, and it gives your 401(k) assets a longer chance to grow, and it reduces the number of years you have to support yourself," says Alicia Munnell, the center's director. Less important was the rate of return earned on investments.

4. Health. This is the largest reason people continue to work and one of the largest reasons for personal bankruptcy. Obamacare or some version could change the rules here. However, long term care and health care can devastate a retirement plan for your spouse. Genetics can play a role in financial planning. Longevity and family history of diseases should be factored into those numbers and most planners don't do that. You do NOT get a do-over in retirement so review your number and add any expected healthcare costs to it for a successful retirement plan.

Lamkin Wealth Management
5151 Jefferson Blvd., Suite 102
901 Lily Creek Drive Ste. 102
office: 502-961-6550 Office
toll free: 866-961-6550

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