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WRAL SmartShopper

Thursday thoughts: Are you saving enough for retirement?

Posted June 7, 2012

 

Clark Howard had some interesting information on his show this week about how much the financial gurus are now saying we should be saving for retirement. Is 10% still enough? Are you comfortable with your rate of savings for retirement?

Clark said that experts are now indicating that 15% is a better savings rate to shoot for instead of the 10% we have been told for decades. His reasoning is that because so many companies no longer offer an employer-paid pension that we have to make up the difference ourselves. For a short video from his show,  click HERE.

Do you agree with Clark? Have you even been saving 10% per year? On the show, Clark says that the average savings is actually more like 4% per person, which would not be enough for many to live on when it is time to retire.

Do you work for a company that offers a pension? They are few and far between. How about a match on your 401K? Since my husband and I are self employed, we have no matching contributions so it's all up to us.  If you are wondering where some of my coupon savings goes, it's towards our retirement.  Last year, we were able to save 10% of our income. That hasn't happened every year we have been married, but we got there last year. Based on what Clark is saying, it wasn't enough. In addition,  I really have no idea if there will be Social Security benefits available when I retire so we are planning as if we won't have that money (but hoping that we will!).

One of my favorite financial blogs, GetRichSlowly.org HERE , has some advice about determining how much you really need to save based on your current spending.  Instead of taking a flat percentage of your income, the author suggests that we should look at how much we are actually spending in order to come up with the magic retirement savings number. Of course some expenses should be gone by then, like mortgage and child care expenses so you have to take that into consideration.  Click HERE for the article on GetRichSlowly.org which includes a number of very helpful retirement income calculators. 

In addition, it's also important to look at your vision of retirement. Do you plan to hang out on the hammock in the backyard and read books from the library all day or do you plan to jump in the car and travel for weeks at a time? How you plan to spend your retirement will significantly influence how much you will need to save.

For some folks, they will have enough at retirement because their income is more than they are spending. They may be making loads of money or they may simply be frugal and living within their means and saving every single month. For many people I have spoken with at classes and online, it is not that simple. In this difficult economy of lay-offs and high unemployment, they are barely making enough to make ends meet, let alone save 10 - 15% for retirement. During a time when they should be building up the retirement account, they are struggling to pay everyday expenses. In that case, it is even more important to make sure you are living as frugally as possible so you don't incur additional debt that will be very difficult to dig out from under.

If you have an employer match, take advantage of it! It's free money! At least save up to the matching amount. The best way to guarantee you are saving each month is to have the money direct deposited into the savings account so you don't have to make the choice each month as to how much to save.

In the end, it's important to start thinking seriously about your retirement savings if you are not already on track to reach your goals. Visit some of the retirement calculators in the GetRichSlowly article to get an idea as to how your current savings compare to what you need to be saving.

Here's a pretty clear picture using some basic numbers. This does not take into account interest earned on investments or pension or Social Security benefits. If you expect to need $40,000 per year ($3,333 per month) to live on during retirement, you will need approximately $1 million in retirement savings based on a 25 year retirement. That's a lot of money! 

So, are you on track to retire comfortably? What are you doing to ensure you will be able to retire when the time comes? At what age do you hope to retire?

I'd love to hear your thoughts and retirement goals!

 

 

 

7 Comments

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  • Luv2Camp Jun 11, 2012

    In years past, the stock market was growing and folks could depend on a 10% return on their investment. Those days are long gone. We will be best to get 6% now in the future. A 4% return difference may not sound like much, but it is HUGE over 10 years or more.

  • storchheim Jun 11, 2012

    Not everyone knows this, but you can make maximum contribs to your 401k AND to your IRA. Even when it wasn't tax deductible, I made maximum contribs to every year I could afford it. Many people thought that if they couldn't deduct it, it wasn't allowed. It is, and it still accumulates for retirement, and there are some accounts that can't be touched or counted in certain legal situations - another reason to stash your money there.

  • acbraswell Jun 8, 2012

    Also wanted to add that everyone should take advantage of the maximum match by their employer if at all possible. If not, you're throwing away free money, and we all like FREE on this blog :)

  • acbraswell Jun 8, 2012

    Like Erin's husband's employer, my employer doubles matches up to 4% (if employee does 4%, company does 8% for a total of of 12%), and if employee does 5%, employer does 9% for a total of 14%!! 9% is maximum employer contribution, but employee can do up to maximum allowed by law. So if husband is already taking advantage of the max, company won't match more and I agree with JR (no relation, ha ha), she needs to save contribute as much as she can on her own if possible!

    This is a topic I'm very interested in. Thanks for posting!

  • jrbraswell Jun 8, 2012

    Faye, what you suggested to Erin is a good idea until that spouse decides to move on out of a marriage. I did that with my wife's 401K since she was matched $1 for $1 and hers was built up significantly more than mine and guess what now I am shortchanged in my savings and she plans to fight tooth and nail to prevent me from getting any of it. So it looks like she will either end up with it or the lawyers will.:(

  • Faye Prosser - Smart Shopper Jun 7, 2012

    Sounds like you have a solid plan in place, Erin! That 9% match is incredible! Can you save less in your 401k and have him save more that will be matched since yours only matches your first 4%?

  • erinlikescoupons Jun 7, 2012

    I determined a long time ago that Social Security would not be around when I retire. I got a "real job" when I was pretty young and immediately started a 401K. My grandmother worked until she was into her 70's and I saw her struggle, so I decided I'd work hard, live frugally, and save save save! I currently save 15% for my 401K each year. My employer matches 4%. I also contribute another $100/mo to my Roth IRA. My husband does 5% and his employer matches 9%!! We also save towards his Roth IRA each month. Eventually, we'd like to have his contributions up to 10%, but that may be a few years after we have children and are done with day care expenses. We are currently on track to have more than we need at retirement, so if anything crazy happens along the way, we will have a buffer or leave some extra to our heirs some day.