Jul 01, 2017
Most Americans simply do not save enough for retirement.
Nearly half (45 percent) of working-age households do not have any retirement assets, according to the National Institute on Retirement Security. Of those working-age households close to retirement (age 55 and older), nearly two-thirds have less than one-year’s worth of their annual salary in retirement savings.
So how much do you actually need to retire comfortably? There are many variables to consider, including retirement age, available pensions, and investment return assumptions. Mutual fund broker, Fidelity, estimates you need enough savings to replace roughly 85 percent of your pre-retirement income. Many experts estimate you will have to save between 8 and 12 times your pre-retirement annual income to reach this goal.
But the amount needed depends on when you plan to retire. For example, Fidelity estimates a person planning on retiring at age 65 will need to save 12 times their pre-retirement income. By delaying retirement by just five years, to age 70, your savings estimate lowers to eight times your annual income.
This may be why an increasing number of Americans plan on delaying retirement or working during retirement. A majority (51%) of workers surveyed in 2016 by the Transamerica Center for Retirement Studies said they plan on working during retirement.
Some ideas to consider now
These are sobering realities, but there are actions you can take to put you in a better position during your golden years.
- Contribute as much as possible every year to your employer provided retirement plans. With a 401(k) pre-tax retirement plan, for instance, up to $18,000 can be contributed each year, or $24,000 if you are age 50 or older.
- Contribute as much as possible to a Traditional or Roth IRA every year, up to the $5,500 maximum, or $6,500 if you are age 50 or older.
- If available, contribute as much as possible to a health savings account (HSA), which can be used to offset medical expenses, up to $3,400 a year, or $4,400 if you are age 55 or older for 2017.
If you would like to review your tax-advantaged retirement strategy, the accountants and advisors at Terry Lockridge & Dunn and World Trend Financial can help answer questions regarding your specific circumstances. We can be reached in Cedar Rapids at 319-364-2945 or in Iowa City at 319-339-4884.