If you’re thinking about retirement while those years are still in the distant future, someone raised you right. In 2010, 75 percent of Americans were woefully short on retirement funds, according to Teresa Ghilarducci, a nationally-recognized expert on retirement security, writing in “The New York Times.” The sooner you start saving for retirement, the better off you’ll be. Saving for retirement is really all about planning for the fun you’ll have and preparing for, while not exactly the Zombie Apocalypse, the worst.
20 Times Your Annual Income
To determine what you need at retirement, you need to decide when retirement will be. If you’re 25, you start saving now and are frugal -- you opt for a Toyota Yaris instead of a Lexus convertible -- you might be able to retire at 50. Or, if you subscribe to the adage that 70 is the new 50 and you imagine yourself working that long because you’d be bored during retirement, you would need less and could spend more during your younger years. The typical retirement age, however, is 65. So to get a typical answer on what you’d need, assume you’ll retire then. You’ll need to have saved about 20 times your annual income to maintain your standard of living, Ghilarducci figures, beyond what you will get from Social Security. So, if your income is $100,000 per year, you need to have $2 million saved for retirement.
How to Get There
If you’re 25, you need to save around $7,400 a year to get to $2 million, assuming your money is making an 8 percent annual return, according to MSN Money. A Roth IRA and 401(k) accounts are good ways to save. Michael Farr, a Washington, D.C., investment adviser, recommends putting your money in an index fund instead of an actively managed fund because it’s cheaper that way and your earning potential is greater.
Consider purchasing retiree medical insurance. Medicare should kick in when you’re 65, but it’s better not to count on it. The program may or may not be solvent by the time you need it, according to Forbes. Couples who don’t have insurance will need $230,000 to pay for health care during retirement. The longer you live, the more you’ll need. But unless you know something most folks don’t, you can’t accurately predict how long that will be. Also, consider buying a long-term care insurance policy if you think you’ll amass assets worth at least several hundred thousand dollars.
The $2 million figure is an average many people shoot for, but you know yourself better than anyone. If you plan to live a laid back, scaled-down life during retirement, you won’t need as much money. If you plan to jet set around the world and live a lavish life during retirement, you’ll need more. Whatever you decide, having a plan can make your retirement goals happen.
Laura Agadoni has been writing professionally since 1983. Her feature stories on area businesses, human interest and health and fitness appear in her local newspaper. She has also written and edited for a grassroots outreach effort and has been published in "Clean Eating" magazine and in "Dimensions" magazine, a CUNA Mutual publication. Agadoni has a Bachelor of Arts in communications from California State University-Fullerton.