exactly how much they need to save is another issue altogether. With all the
information available about retirement, it is sometimes difficult to decipher what is
appropriate for your specific situation.
salaries to maintain their lifestyles in retirement. However, depending
on your own situation and the type of retirement you hope to have, that number
may be higher or lower.
Fortunately, there are several factors that can help you work toward a retirement
The first factor to consider is the age at which you expect to retire. In reality,
many people anticipate that they will retire later than they actually do;
unexpected issues, such as health problems or workplace changes (downsizing,
etc.), tend to stand in their way. Of course, the earlier you retire, the more money
you will need to last throughout retirement. It’s important to prepare for
unanticipated occurrences that could force you into an early retirement.
Although you can’t know what the duration of your life will be, there are a few
factors that may give you a hint.
You should take into account your family history—how long your relatives have
lived and diseases that are common in your family—as well as your own past
and present health issues. Also consider that life spans are becoming longer with
recent medical developments. More people will be living to age 100, or perhaps
even longer. When calculating how much you need to save, you need to factor in
the number of years you will spend in retirement.
Future Health-Care Needs
Another factor to consider is the cost of health care. Health-care costs have been
rising much faster than general inflation, and fewer employers are offering health
benefits to retirees. Long-term care is another consideration. These costs could
severely dip into your savings and even result in your filing for bankruptcy if the
need for care is prolonged.
Factoring in higher costs for health care during retirement is vital, and you might
want to consider purchasing long-term-care insurance to help protect your
Another important consideration is your desired retirement lifestyle. Do you want
to travel? Are you planning to be involved in philanthropic endeavors? Will you
have an expensive country club membership? Are there any hobbies you would
like to pursue? The answers to these questions can help you decide what
additional costs your ideal retirement will require.
Many baby boomers expect that they will work part-time in retirement. However,
if this is your intention and you find that working longer becomes impossible, you
will still need the appropriate funds to support your retirement lifestyle.
If you think you have accounted for every possibility when constructing a savings
goal but forget this vital component, your savings could be far from sufficient.
Inflation has the potential to lower the value of your savings from year to year,
significantly reducing your purchasing power over time. It is important for your
savings to keep pace with or exceed inflation.
Many retirees believe that they can rely on their future Social Security benefits.
However, this may not be true for you. The Social Security system is under
increasing strain as more baby boomers are retiring and fewer workers are
available to pay their benefits. And the reality is that Social Security currently
provides only 27% of the total income of Americans aged 65 and older with at
least $50,000 in annual household income.1 That leaves 73% to be covered in
And the Total Is…
After considering all these factors, you should have a much better idea of how
much you need to save for retirement.
For example, let’s assume you believe that you will retire when you are 65 and
spend a total of 20 years in retirement, living to age 85. Your annual income is
currently $80,000, and you think that 75% of your pre-retirement income
($60,000) will be enough to cover the costs of your ideal retirement, including
some travel you intend to do and potential health-care expenses. After factoring
in the $12,000 annual Social Security benefit you expect to receive, a $10,000
annual pension from your employer, and 4% potential inflation, you end up with a
total retirement savings amount of $760,000. (For your own situation, you can
use a retirement savings calculator from your retirement plan provider or from a
financial site on the Internet.)
The estimated total for this hypothetical example may seem daunting. But after
determining your retirement savings goal and factoring in how much you have
saved already, you will be able to determine how much you need to save each
year to reach your destination. The important thing is to come up with a goal and
then develop a strategy to help reach it. You don’t want to spend your retirement
years wishing you had planned ahead when you had the time. The sooner you
start saving and investing to reach your goal, the closer you will be to realizing
your retirement dreams.
Visit The Retirement Group: http://www.theretirementgroup.com
Source: 1) Income of the Population 55 or Older, 2006, Social Security Administration, 2009.
Breakdown based on people aged 65 and older with at least $50,000 in annual household
This material was written and prepared by Emerald. © 2010 Emerald
This material was prepared by Emerald. © 2010 Emerald and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Philip Catalan, Brent Wolf, Andy Starostecki and The Retirement Group or QA3 Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
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