How Much Should You Save for Retirement?

It’s tough to imagine retirement when you’re just starting out. You know you should start saving some money for the future, but how much will you actually need? A few simple steps can help you calculate your retirement goal and assess whether you’re on track:

Step 1 Estimate your retirement income. Ask your employer how much income you should expect to receive from a pension, and calculate how much you could get from Social Security. The www.socialsecurity.gov benefits calculators can help.

Step 2 Take stock of your current savings. Add up the balances in your 457, 401(a), IRAs and other retirement savings plans.

Step 3 Calculate how long your savings might last in retirement. Use the “Am I Saving Enough?” calculator to estimate how long your savings might last in retirement based on your anticipated expenses, Social Security, pension benefits, and current and future retirement account savings. Because everyone’s personal circumstances are hard to predict and can change over time, recalculate the estimate using different, but still realistic numbers to see alternative scenarios. Include conservative assumptions about your life expectancy, investment returns, tax rates, and inflation to gauge how much you would need to save under challenging conditions. For example, assume you live a long life, earn less than historical market averages, and endure higher than average taxes and inflation. See how your estimate might change. Remember, the calculator is only intended to be used as a retirement planning tool and is not a substitute for a personalized financial plan.

What to do next. These calculations are just rough estimates, and the specifics can change over time depending on the performance of your investments and your retirement income needs. But they can let you know whether you’re on track to reach your goals and give you plenty of time to make changes to your budget, savings, and retirement plans.

Thanks to the magic of compounding (interest you earn continues to earn additional interest), the sooner you start building a retirement nest egg, the easier it will be to meet your goal—even if you can’t afford to invest all of the needed amount yet. So contribute what you can now and add more whenever you get a raise. Investing the money in a tax-deductible plan, such as a 457 deferred compensation plan, is an easy way to save because your contributions are automatically invested before you receive your paycheck. For additional help, use the guides and tools in our planning section or contact your Retirement Plans Specialist."