Although everyone should be saving for retirement, few actually are. According to statistics published by the Employee Benefit Research Institute, approximately 60% of adults in the workforce are actively saving for retirement and only 65% of those that are saving have more than $50,000 saved. The worst statistic, however, is only about half the savers actually crunch the required numbers to know how much they need to save.
Before you can make a plan, you need to know a few things:
1) What age do you want to retire? Maybe you’re ready to retire, but you have a few bills you want to pay off first. A mortgage payment can be a lot easier to manage when you have a steady income. One scenario that may impede your ability to retire is your company suffering a financial hardship, closing and taking your retirement benefits with it. These factors should be considered in an uncertain economy.
2) How much can you live on? You ‘should’ need less money to live on in your retirement unless you plan on living better than you had when you were working. You’ll no longer have commuting, work clothes and lunches out in your budget. Your newfound savings on these expenses should help defray the income restrictions you have in your retirement. Other expenses, however, will more than likely increase, such as medications, doctor visits and hospitalizations.
Reportedly, retired workers spend 65-80% of the income they had when working, once they retire. People at the lower end of that percentage have saved more of their annual income and usually don’t have a mortgage or other high debt. They also earned higher salaries and have chosen to downgrade their lifestyle. At the higher end of the percentage are those who have saved little or none of their annual salary, and still have a house payment, significant debt or a high rent payment. They need all of their current income to meet their current lifestyle and have expensive hobbies.
In order to foresee the size of the nest egg you’ll need for retirement, take a look at your current lifestyle and ask yourself if there is anything you can cut back on now in order to increase your wealth. Perhaps you could take a second job and simply bank all that you make. You may find areas where you can cut corners now in order to enjoy more activities and your current lifestyle later.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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