My daughter just sent me an e-mail asking: "How much should I save for retirement?" I'm not sure how to answer: She is a single mother, 36 years old and a supervisor earning about $60,000.00 living in San Diego area.
I have been asking myself the same question. I wish I would have asked this question when I was 36 rather than now at 52. I can not remember where I read it but I saw a guideline of 10% to 15% of your pre-tax salary. The higher the better. I would strongly recommend a subscription to MTF Rule Your Retirement. I recently joined and find it very helpful. There are many resources on this site to answer your question. The DirectAdvice planner is a full featured planner that you input all of your data and it let you know if you are going to meet your retirements goals. I felt a little better after running the DirectAdvice planner.Jim L
Isn't there an analytic approach to how much you need to save for retirement? It would seem to start by estimating likely annual income need (expenses), starting with current burn rate and adjusting as needed. You might deduct an estimate of annual social security and any pension you're sure of to arrive at a net you'll have to provide yourself. You're like to need to have accumulated 25 times this annual amount in order to draw an infaltion adusted 4% for retirement.With this number in hand, you could visit Vanguard's financial planning web site where they discuss risk and look at expected returns for various asset allocations, e.g. IIRC 60/40 has an expected retun of about 8-9%. Create a sreadsheet with years in the first column, value of holdings in the second column, starting with current holdings. Each year adjust the entry in this column by previous year value times 1.08 plus the contribution you made in the previous year.Keep a running total at the bottom of the spreadsheet or in a third coulmn, and you'll quickly get an idea of how much you need to save by the amount of the yearly contribution needed to accumulate 25 times annual retirement income.It ain't magic and it ain't guaranteed, but it's better than 10-15% of income.db
You might deduct an estimate of annual social security and any pension you're sure of to arrive at a net you'll have to provide yourself.For my planning purposes, I discount these 50%. I'd rather be surprised by extra money than counting on money that is not there.foolazis
This is a standard calculation for CFP Students and is always tested, in one form or another, on the CFP Certification examination.Anyway, what you'll need to provide is the following:- Expected age of retirement- Life expectancy (there are some pretty cool calculators for this that you can Google to)- What is her expected wage inflation rate (there is a web site that shows what this has been historically by type of job. 4% is average)- What % of income will be expected at retirement. Historically, this has been 60-90% depending on type of job. 80% is typical- What is the projected SS benefit at full retirement age. This comes off her annual SS statement.- What is consumer inflation expected to be. 3% is the typical estimate.- What rate of return will she expect on her investments during her working years and in retirement. Typical estimates are 8.5% and 7%.- Does she wish to leave a residual estate- How much does she currently have saved for retirement (employer retirement plan + IRA's + other savings earmarked for retirement)Of course, theres a lot of variance in the outcome, but this is typically managed by recalculting annual savings requirements on a regular interval over one's working years.So if you'd like to get these values and post them back, I'll run the calculation for you and tell you what the current annual savings should be.BruceM
If this is the first time she's asked and you don't want to overwhelm her, I'd go with a simple 10% of your income. If she has a 401K matching opportunity, point her there to start. Otherwise probably a Roth.If you're doing email, you won't be able to see when her eyes roll back in her head because you've made things too complicated :)rad
- Life expectancy (there are some pretty cool calculators for this that you can Google to)I have not seen one yet. People on these boards link to them but I don't like any of them. I don't think I've seen one yet that considers genetics as a factor. They usually just ask lifestyle questions.IF
10-15% is a good start, but she needs to catch up quick if she has nothing saved. Anything is good, more is better.
My daughter just sent me an e-mail asking: "How much should I save for retirement?" My answer is as much as she can afford to save now. The minimum is the amount necessary to receive any 401k matching funds from her employer. Point her to this TMF articla:http://www.fool.com/personal-finance/general/2007/07/16/your-first-million-is-the-toughest.aspxWhat it shows is the value of compounding. $500 saved per month will get her to $1 million in about 29 years at a 10% return. The $1 million can provide $40,000/yr in retirement. Add what might be available from social security, will likely get her close to her current take-home pay. Saving this 10% of her pay would be a good start, but she should save some additional to keep ahead of inflation.Calvin
MikenRobin I am sure you can get some answers that are very specific -- I don't have enough information to provide anything detailed. But I can tell you the absolutely most important thing is do something, save something now. On the assumption she has minimal savings now, she is not going to inherit a pile or win the lottery -- she probably will have to save more then 10% -- Once she gets a something in the range of $3,000 to $6,000 she can start worrying about where to put it. In the mean time start.Some, but not all place will have minimun contributions. So assuming she has not credit card debt, just put money in a bank or a money market and spend some time looking at the details of Roth, IRA, or whatever. If she has credit card debt, do not use the cards and pay the debt off -- that is 15% or greater. If I could earn 15% on my investments, I could cut my retirement savings by at least 25%.GordonAtlanta
My daughter just sent me an e-mail asking: "How much should I save for retirement?" I'm not sure how to answer: She is a single mother, 36 years old and a supervisor earning about $60,000.00 living in San Diego area. She can type in her data in the AARP Retirement calculatorhttp://sites.stockpoint.com/aarp_rc/wm/Retirement/Retirement.asp?act=LOGINA pretty decent calculator, factors inflation, life expectancy, variable % returns, etc. The numbers might look scary initially, but baby steps and understanding the effect of compounding is the point you want to get across. Example 1: an annual $2000 investment in a tax-deferred account for 35 years, earning 10%, would be worth more than $540,000Example 2: an annual $2000 investment in a tax deferred account for only 10 years, continuing to compound for another 25 years in the same tax-deferred account, earning 10%, would be worth more than $345,000.Good luck,Hohum
How much should I save for retirement?My short answer: Everything she can afford. If some of this is in non-tax-deferred accounts, it can be used to help her child(ren) with education expenses, if it turns out later that she has saved more than she needs. If she is like most of us who started saving too late in life, the "if" is unlikely.Byron
As much as she possibly can.There's no such thing as saving to much. If she saves too much, she just gets to retire earlier.And if she can't afford to save enough right now, telling her that would just be depressing. So just tell her to save as much as she possible can whenver she can.
Thank you to everybody that replied to my query - I sent most of them to her and she replied that she is saving about 12% of her before tax income in a 401K - so I think she is doig OK.Mike
My daughter just sent me an e-mail asking: "How much should I save for retirement?" I'm not sure how to answer: She is a single mother, 36 years old and a supervisor earning about $60,000.00 living in San Diego area. Does the company she works for have a 401K plan? Does it match contributions up to a certain point? Does she have an IRA (Roth or otherwise). Is she actually now saving anything for retirement?If her company has a 401K plan that has at least one stock index fund, I would suggest she make the maximum contribution allowed. I'd also suggest she contribute $2000/year to a Roth IRA and put that in something like VFINX ( http://finance.yahoo.com/q?s=VFINX ) if she can.Churchy
I have not seen one yet. People on these boards link to them but I don't like any of them. I don't think I've seen one yet that considers genetics as a factor. They usually just ask lifestyle questions.IF I don't see how they could account for genetic factors. I'm not sure how they'd weight the numbers. I'm approaching 61. The last time I looked, I had about 20 years of life expectancy. OTOH, both sides of my parents' families (with a couple of exceptions) have lived well into their late 80's or early 90's. I'm figuring I have about 30 years to go and that's what I'm planning for.Churchy
I don't see how they could account for genetic factors. I'm not sure how they'd weight the numbers. I'm approaching 61. The last time I looked, I had about 20 years of life expectancy. OTOH, both sides of my parents' families (with a couple of exceptions) have lived well into their late 80's or early 90's. I'm figuring I have about 30 years to go and that's what I'm planning for.I don't know how to weigh any factors related to genetics since it isn't my field of study but almost every life expectancy calculator returns results greater than 80 years for most people. Someone whose father died at 61 from a heart attack and his two brothers and grandfather also died of heart attacks in their 50s may not make into his 80s.Interestingly enough, my relatives are often overweight and don't have the greatest diets. Yet heart attacks are non-existent. Many of them live into their 90s and some into their 100s. IF
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