May 21, 2007 - The harsh reality has set in for most of us and we realize that counting on Social Security to help see us through retirement is no longer a viable option. In fact polls indicate that nearly half the adults under the age of 35 believe that Social Security benefits will not exist by the time they retire. Social Security was not intended to be your sole source of income, however today at least 20% of seniors count on Social Security as their only source of income. The good news is that Social Security is likely here to stay and is very likely to be around when you reach retirement age, however it is not enough to live on comfortably and should never be relied on exclusively. You will need to save for your retirement in an amount sufficient to supplement your Social Security benefits and to comfortably support yourself.
To determine how much you need to save on a monthly basis now to reach retirement and achieve your lifestyle goals, you will need to do some calculating and a bit of projecting to develop an estimate of what you’ll need to have down the line. Most people should anticipate requiring 70%-80% of their pre-retirement earnings during their retirement in order to maintain their present standard of living. The following guidelines should help you in forming your estimate:
Count on needing 85% of your pre-retirement income if:
You want to maintain the same lifestyle you had while you were working throughout all of your retirement years.
You anticipate having high expenses during retirement such as continuing to make mortgage payments or have other forms of significant expenses to cover.
You have saved only minimally for your retirement, an average of only 5% or less of your monthly income while you were working.
Count on needing 75% of your pre-retirement income if:
You want to maintain a standard of living that’s close to what you had while you were working but you are willing to cut back somewhat while on a fixed income.
You anticipate having only moderate expenses after you retire, you have paid off (or have come close to paying off) your mortgage and will have paid off the majority of your major debts.
You have saved a moderate amount of your monthly income, somewhere in the range of 5% to 14% while you were working.
Count of needing 65% of your pre-retirement income if:
You do not intend on living a lifestyle that resembles the one you had pre-retirement. You have planned on and expect to cut back substantially on your living expenses.
You anticipate being debt free at retirement and have close to zero debts remaining to service.
You have been a strong saver while working, saving up to 15%+ of your monthly income.
Please read our continuing series that looks at money management in all forms:
