In a nation that debates nearly everything, this topic creates almost no disagreement.
Americans aren’t saving anywhere near enough for retirement, setting the stage for a potentially dreary time ahead for many when they reach the closing act of their lives. In fact, a study by the Economic Policy Institute found that almost half of American families have no retirement-account savings at all.
While the widespread-savings shortfall is a given, a consensus is trickier to find when it comes to advice on just how much of your weekly salary you need to stash away if you want your retirement to be secure.
“Opinions vary; you’ll hear some people say 10 percent, you’ll hear others says 15 percent,” says Rick Rivera, a partner at Safeguard Investment Advisory Group (www.safeguardinvestment.com). “Some people say you need to have saved $1 million by the time you retire, which is a tall order for a lot of people.”
Clearly, something is better than nothing, but following some general rule of thumb for saving could lead you astray, Rivera says. Everyone has different circumstances, goals, and objectives.
“What your neighbor needs and what you need may not be the same thing at all,” he says. “You need to take a look at your own financial situation and at what a good retirement would look like to you.
Rivera suggests a few things to consider on the way to zeroing in on the right savings amount:
• Figure out what it is you plan to do in retirement. Do you want to travel or spend a lot of time golfing? Is there a hobby you enjoy? Maybe you want to spend time as a volunteer. “Once you have an idea what it is you want to do,” Rivera says, “you’ll want to consider the expenses related to those activities.” That means creating a budget and determining the amount of monthly income you’ll need to do the things you want to do.
• Review your potential income sources. Will you receive Social Security? Is there a monthly pension check in your future? Although it’s becoming much less common, some people have great pensions, so they don’t need to save as much. Most people, though, don’t fall into that category, so they need to focus more on saving to cover the shortfall.
• Do the math. If, for example, your pension and Social Security add up to $4,000 a month, but you’ve determined you’ll need $6,000, then you know you’ll need to make up that $2,000 shortfall from your savings. Based on your age and an estimated rate of return, a calculation can be made to figure out how much you’ll need to save to accomplish your goal. A young person, obviously, could save a smaller percentage of their income than someone who’s just 10 or 15 years away from retirement.
“Depending on just how close you are to retirement, you may even have some catching up to do,” Rivera says. “This is why I say that following a general rule in a vacuum isn’t the best idea. It may or may not get you where you need to be.”
About Rick Rivera
Rick Rivera is a partner at Safeguard Investment Advisory Group (www.safeguardinvestment.com) and has more than two decades of experience in the financial industry providing guidance to those planning for retirement. He is an investment advisor representative holding a series 65 license, as well as Life-Only and Accident and Health licenses in California.