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Retirement Lifestyle
How Much Do You Need to Retire?
By James Fogal
Financial Planner, Fogal Financial Group
Where do you want to be during your golden years? Do you want to see the world? Buy that sports car you dreamed of? How about that retirement beach house? To start planning, write down your goals for retirement. Once you have decided, think about cost and what it may take to get there.
Many American workers anticipate an enjoyable retirement after years of the daily grind and commute. Traveling, golfing, relaxing by the pool... the possibilities seem truly endless. As workers daydream about the world of retirement, few venture to guess how much their retirement lifestyle might cost.
More than half of all workers believe they will need less than 70% of their pre-retirement income for their retirement years, according to a 2003 survey conducted by the American Savings Educational Council (ASEC). This estimate could be inaccurate for many Americans, considering that people live longer and face increased medical expenses and inflation. In fact, with medical advancements today, many retirees may be retired longer than they actually worked. Also, many people don't believe Social Security will be able to supply them with income during this time. With new changes on the horizon, retirees could see less and less of this money.
If you don't know your retirement goal amount, you are not alone. Sixty-five percent of people saving for retirement can't pinpoint an exact amount, according to the ASEC. Many financial planners may tell you to estimate your needs at 70% of your current annual income. While this figure gives you a hard number, it could grossly misrepresent your plans for retirement. Your retirement finances are dependent on length of life, medical expenses, your retirement lifestyle and what you might need during those years.
Many savings options are available for your retirement nest egg. Most employers offer a savings plan such as a 401(k) or a 403(b). If you enroll in those programs, start investing a percentage of your pay in these plans. Individual Retirement Accounts (IRA) are another option. In 2002, annual contributions to IRAs increased from $2,000 to $3,000 ($3,500 for those age 50 and older). The limits will continue to increase because of the recent tax laws, and depending on your age, you may be eligible for a catch-up provision for increased contributions. If you ever change jobs, your earnings could roll over to your new employer's plan or into an IRA.
Whatever saving method you choose, the important thing is to start saving now. The earlier you save money, the more time your money has to grow. Consult an investment professional for advice on retirement planning.
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