How Much to Save for Retirement If a Spouse Has a Pension?

Time spent projecting your future needs can give you direction and peace of mind.

Time spent projecting your future needs can give you direction and peace of mind.

When one partner has a pension -- or a defined benefit retirement plan -- and the other has a regular 401(k) or other defined contribution retirement plan, coming together to figure out exactly how much you need for retirement can be a challenge. With some time and a few tools, however, you can easily see how much you should be saving outside of your spouse's pension.

Pension Plans: An Overview

Pension benefits are usually based on income and years of service with the employer and provide a specific level of benefit throughout the participant's lifetime. Pension plans used to be among the most common retirement options for large companies and government agencies, but they have become less common due to expensive administration costs for the employers. Employees are also becoming more mobile and less likely to spend their entire working careers with one employer, making it difficult for employees to build up enough tenure to make a pension plan a viable retirement option to fully fund their retirement needs. If you’re eligible for a pension plan at work, however, it can be an important component of your family’s retirement planning.

How Much You Need

To figure out how much to save above and beyond the pension benefit, you must project your estimated annual income need in retirement. A rule of thumb would be about 80 percent of your current income, if you don’t plan to do major traveling or have significantly higher expenses during retirement. If you want to see the world or you foresee expensive health care costs, you should budget more.

What Your Pension Is Worth

Once you have calculated your annual income need in retirement, you must find the estimated annual benefit for the pension. Usually this information can be found through the human resources office, an annual statement of benefits, or on the employer's website. The gap between your estimated income needs and your projected pension benefits will need to come from other sources, such as Social Security, other retirement savings, or part-time employment in retirement.

How Much To Save

The most common goal for 401(k) or defined contribution plan participants is to build up enough savings that the interest, or returns, on those savings generates sufficient income during retirement. A well-balanced investment portfolio can generate about 4 percent of its total value annually without drawing down the principal. You can do the math yourself, or use an online calculator, which can show you how much you will need to save to achieve a specified level of income generation -- in this case the gap between your annual income needs and the annual pension benefit. Some of these calculators even include pension benefit estimations in their calculations. Keep in mind that your retirement savings will grow if you have them invested in a balanced, diversified portfolio and you continue to add more over time.

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About the Author

Kathleen Chalk holds a BA from Miami University and an MA degree from Vanderbilt University. She has been writing academically and professionally for nine years and has contributed to academic journals and databases, government publications, and books. Chalk speaks Spanish and Brazilian Portuguese. She currently lives in Miami.

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