The bottom line question in all
is this: How much money will you need?
The answer depends on your circumstances, of course.
Fidelity Investments' rule of thumb is that at the start of
retirement you need at least eight times your final preretirement
salary to assure that you won't outlive your savings for at least
Fidelity assumes you retire at age 67 and want to replace 85%
of your preretirement income, including Social Security, which is
not part of the salary-times-eight savings.
With a nest egg equal to eight times your final preretirement
salary, you should be able to afford to withdraw 4% a year to
help pay living expenses for 25 years, says John Sweeney,
executive vice president of retirement and investing strategies
at Fidelity. Social Security benefits pay for the rest.
"At age 65, our target date portfolios have about 55% in
equities," Sweeney said. "You need equities to drive growth to
outpace inflation. And the portfolios have another 35% in fixed
income and 10% in (cash) to take some (short-term) risk off the
Aon Hewitt, a human resource consultant, advises workers to
save at least 11 times their ending salary. So if your ending
salary is $150,000, your retirement kitty must start with at
least $1.65 million.
To get a custom-tailored answer, start by listing your
retirement goals. Will you live in a big or small home? Do you
plan to travel a lot?
How long do you expect to live? Is your health good? How long
did your parents, grandparents and great-grandparents
Build A Budget
Next, translate your wish list into a budget. What do you
expect to spend in a typical year within the first, say, five
years of retirement?
Include housing, food, health care, clothing, travel and
"For many clients, that will range between 75% and 85% of
preretirement income, but it can be higher or lower," said Mervyn
D'Mello, branch office manager for
at The Villages, Fla.
Your target income includes Social Security benefits.
Your annual retirement spending will typically be around 4% of
your starting balance. It may be adjusted yearly for
Will the amount you've saved and your rate of savings get you
where you're trying to go -- a nest egg that will support you and
your spouse based on your spending goals for 25 or 30 years?
The easiest way to find out is by using an online
In fact, use more than one. Many calculators weigh factors
differently. Which should you use? All the major ones are valid,
but use the one that makes the most sense to you.
TransamericaCenter.org's calculator has a built-in tool that
shows how much in Social Security benefits to expect . But it
does not show you how large your nest egg will be at
Bankrate.com's calculator shows nothing about Social Security
income. But it shows portfolio size at retirement and yearly
balance. You can tweak assumptions like the expected inflation
Fidelity.com's calculator lets you plug in and adjust numerous
variables. Then it shows how much you'll need in total and how
much you're on track to have. It also lets you indicate how
aggressively you invest in your retirement accounts.
"The most important thing is to have an investment plan,"
D'Mello said. "Compare that to your actual progress, and see if
you're on the right path or if you need to change something to
reach your goal."