Here's a tantalizing prospect: Suppose you really do have enough
money to retire. That's not the message we usually get from
downbeat commentators, but it's the refreshing perspective
senior editor Jane Bennett Clark
How Much You Really Need to Retire
. Jane points out, for example, that retirement planners generally
recommend that you have enough savings at the end of your working
life to replace 70% to 85% of preretirement income--and sometimes
even more. But your biggest spending years are when you're raising
kids. Depending on your lifestyle preferences in retirement, "you
might get along just fine with 60% of your preretirement income,"
And just as you could be overestimating your expenses, you could
be underestimating your income. In a recent report, Sylvester
Schieber, a former chairman of the Social Security Advisory Board,
and Andrew Biggs, a former principal deputy commissioner of the
Social Security Administration, point out that in accounting for
household income from retirement plans, government figures based on
the U.S. Census Bureau's Current Population Survey include only
payments made on a regular, periodic basis. As a result, monthly
payments from a defined-benefit pension or an annuity are counted
as income, but as-needed withdrawals from 401(k) plans and IRAs are
not. Schieber and Biggs estimate that the figures ignore at least
60% of retirees' income.
Furthermore, they say that government statistics tend to
underestimate the share of income that Social Security replaces.
Using their methodology, the typical retiree would receive a Social
Security benefit equal to about 55% of his average lifetime income,
rather than the 40% generally reported by Social Security; a
low-income retiree would receive about 70%.
In real life, a new T. Rowe Price survey of recent retirees and
near-retirees age 50 and older who have 401(k) plans or rollover
IRAs is also upbeat--89% of retirees say they are somewhat or very
satisfied with retirement so far. They report that they are living
on 66% of their preretirement income, on average, and 57% say they
live as well as or better than when they were working.
A head start. Of course, how well you fare in retirement depends
on how well you prepare while you're still working. Research by the
Employee Benefit Research Institute shows that one of the most
important factors in determining whether you'll have enough income
is participation in an employer-based defined-contribution plan. In
its 2014 Retirement Confidence Survey, EBRI found that workers with
money in an employer-based plan or an IRA are twice as likely to be
very confident about their retirement prospects as those without a
plan. Annuitizing a portion of retirement savings, having
long-term-care insurance and seeking professional advice also
increase the likelihood of a secure retirement. Workers who
estimate how much they'll need tend to boost both their confidence
and their savings.
Jane's cover story gives you a big head start on your planning.
But we don't stop there.
is teaming up with the National Association of Personal Financial
Advisors to offer free retirement advice on September 25 between 9
a.m. and 5 p.m. Go to
to chat with a financial adviser. And once again this year, we are
the official media sponsor of Financial Planning Days throughout
the month of October. You can get a free in-person consultation
with a certified financial planner at events in cities across the
). Please drop by.