How to figure out what you need to retire
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Do you know how much money you'll need to retire? Or how many eggs you should have tucked away at various stages in your life in order to end up with a big enough basket?
If you're like many people, you have no clue.
"Most people don't have any idea how much they should be saving" in order to have a reasonable shot at retiring in their mid-60s, said Charles Farrell, an investment adviser, author and former tax attorney in Denver.
"They put away a couple of bucks and think they will magically end up with a lot of money."
But the guessing game isn't panning out. Study after study has found that millions of Americans will be financially unable to quit working before they die.
One recent survey by the actuarial and employee benefits firm Nyhart found a stunning 81 percent of workers won't be able to afford to retire by age 65.
On average, people will have to keep working until age 73, while those currently age 60 to 64 probably will need to continue slogging it out for a paycheck until age 75 because they haven't been pumping enough into their 401(k)s, the study found.
Most people weren't contributing enough to their retirement savings in the past and only fell further behind during the recent recession, according to the study.
Some people procrastinate simply because they are unsure of where to invest their money. But that's a poor excuse, said Thomas Totten, senior actuary and lead researcher for the study covering 110 public and private companies.
"The decision of how much employees contribute to their 401(k)s far exceeds the importance of which investment funds they choose," he said.
That's where Mr. Farrell comes in. He devised a batch of simple tools, and wrote a book, to help answer what he calls the two biggest financial levers in most people's lives: how much debt to carry and how much to save.
Mr. Farrell figures that most people who make less than $200,000 annually -- "unless you're a Trappist monk" -- will need about 70 percent to 80 percent of their pre-retirement income to maintain their standard of living when they retire.
First Published February 6, 2011 12:00 am
