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Am I saving enough for retirement?

Jan 06, 2012 by Carrin from San Diego, CA in  |  Flag
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18 votes

This is probably the most common question retirement planning advisor get. Unfortunately, it depends on so many things: desired lifestyle in retirement, fixed income sources in retirement, current assets, and so on. I would recommend either finding an independent financial planner to help you determine where you stand compared to your goal or, if you are just starting out in the workforce, use one of the many free online tools as a starting point (Fidelity has some very good tools for individuals).

Comment   |  Flag   |  Jan 06, 2012 from King of Prussia, PA

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We recommend a savings rate of 12 to 15%. If you are a participant in a retirement plan that includes your employer's match (if available). To start, consider deferring up to your employer's match in your retirement plan and then increasing your deferral rate by 1% a year until you reach your goal. We don't know of anyone who has retired and complained that they saved too much!

Comment   |  Flag   |  Nov 18, 2012 from Gastonia, NC

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The "retirement for dummies" answer is to save 10% of everything you ever made, invest it wisely and you will be able to enjoy the same lifestyle throughout your life. Read "The Richest Man in Babylon". OKAY, so much for what we ought to have done!

Many of us didn't follow that advice so the conversation gets way more complicated. How far along are you? How long can you work? Do you have a pension? What are the ways to extend your 'earned' income after partial retirement? Will the market return to 'normal' in our lifetime? How little could you spend and still be happy?

That's why we start with a plan that looks at 1) Your goals, 2) Your current situation, 3) What can you realistically achieve without starving today, 4) What can we conservatively project, 5) Where can we provide assurance, and 6) How can we adjust with the 'curve balls' life sends our way.

So start with a plan.

View all 4 Comments   |  Flag   |  Oct 27, 2012 from Reading, PA
Megan

Personally we are saving 50%+ of our income. Granted, we are blessed to be a dual-income, professional household, but I think 15-30% is doable for most or at least many people. It is all about making sure you are putting your spending where your values are and being thoughtful with every purchase. Even we are profligate spenders with room to do a lot more cutting in the budget.

Flag |  Apr 30, 2015
Megan

[I meant to start a new paragraph, not submit the comment when I hit "enter" just now....] I have found it to be meaningful to sit down and think long and hard about what really makes me happy in life. Then I ask myself whether spending money on A is helping me reach my goals and/or making me happier. Sometimes the answer is yes, sometimes no. For example, the last car we purchased we bought new. Thinking back on it, it was cool to drive a new car for about a month and then it just became part of the routine. Does it make me happier? No. Could I have fulfilled that particular need for transportation with a used car for half the price with no net decrease in my happiness? Probably. The lesson learned for me is that I would be better off investing my cash, buying a cheaper, used car in the future, and reaching my retirement goal just a little bit sooner.

Flag |  Apr 30, 2015

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6 votes

Carrin,

Providing a specific answer to this question is difficult without knowing the details of your financial situation. Deciding how much to save for retirement depends on how old you are, how much you’ve already saved, how much your spouse has saved (if you are married), and other factors. What percentage of your income are you currently saving? You ultimate retirement saving goal should be to set aside between 10% and 15% of your total income. If you’re not at that level, you can get there by gradually stepping up your savings rate. The important thing to realize is that saving just 2% or 3% of your income won’t be enough. Likewise, just contributing enough to get your employer match and not doing anything else is probably not enough to get you to your goal.

When putting together a retirement saving strategy, you also should think about your other financial goals (perhaps you want to fund a college education for your children, for example) and the kind of lifestyle you want in retirement. You also need to take inflation into account. There are a lot of variables to consider.

You can use a variety of online tools to help you estimate how much money you should be saving right now like Mint.com. Better yet, you can talk to an independent, fee-only financial planner, who will work with you to develop a personalized financial plan that will help you set aside enough money to fund the retirement you want.

Comment   |  Flag   |  Nov 26, 2012 from Township of Anderson, OH

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It does require analyzing the complex interaction of many variables. But don't let that stop you from beginning to save now. In addition to contributing your dollars, make use of other favorable features - 1) matching employer contributions from 401k, 2) tax deferred vehicles, 3) time, 4) power of compounding, 5) diversification. Have a budget, set your priorities, and pay yourself first via savings.

1 Comment   |  Flag   |  Sep 08, 2012 from Western Springs, IL
Shannon Wayne Holland

Thanks Kirk for a great common sense approach!

Flag |  Aug 18, 2014 near Naples, FL

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Probably not if you are the average USA worker. It does not matter whether you are blue collar, white collar or professional. If you want to maintain a certain lifestyle there are two options save more than you are currently saving or work longer than age 65. If you are asking the question you already know that you either started to late or are not putting enough away to retire at the medicare eligible age. Put pencil to paper and make a plan to save a lot. Behavioral investing will aid in developing a plan, sticking to it and be dedicated and committed to the plan. Review your income sources at retirement and you will discover that inflation and health care cost will be your biggest challenge while retired.

Comment   |  Flag   |  Jan 09, 2013 from San Antonio, TX

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Peter Cacioppo Level 16

Depends............. Successful clients do certain things. 1. Pay themselves 20% of their Gross Salary every month by automatic programs through their 401(k) or IRA plans, and automatic credits to a brokerage account. 2. Borrow money only to buy a home. 3. Set aside money monthly to accumulate dollars to be used when cars should be replaced. 4. Pay all credit card bills in full every month. 5. Revise their Net Worth statement twice a year, so as to ascertain progress and boost incentives. 6. Fund generous college saving programs. 7. Learn how to enjoy life monthly with what dollars are left to spend. 8. Exercise and eat sparingly. 9. Shop wisely including appropriate negotiating. 10. They organize paperwork including recommended legal documents. 11. Never pay taxes today that can be deferred as laws and circumstances can change in the years ahead to reduce or eliminate the taxes. Call me if you are high income ($200,000 a year) and we can have a latte.

1 Comment   |  Flag   |  Nov 28, 2014 from La Jolla, CA
Peter Cacioppo

My answer above applies to my younger (20 to 50), high income clients (not my older, already established clients).

Flag |  Apr 30, 2015 near La Jolla, CA

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0 votes

Anyone answering your question would need to know more about your age, your geography, and current level of savings to support either just you, or you and a spouse. As a certified financial planner I would also want to know what your yearly income might be, how long you expect to be able to earn at this level, and whether you have any pension or guaranteed lifetime income assets. Finally, it would be important to know your tax bracket and whether you plan to stay in place for retirement or to lower your cost of living with a move elsewhere. Saving 20% of yearly income might be one solution; but if you are in your mid 50's and have little saved, you may need far more.

Comment   |  Flag   |  Apr 30, 2015

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