Finance Archives Doing the retirement math

Doing the retirement math


How much should I be saving for retirement?

Simple answer: As much as you can!

The real answer is not an easy one, and requires a few questions first.

When do you want to retire? How old are you now? How much income will you need when you retire? In order to determine how much to save, you need to know how much you will need, and when you will need it.

As an example, let’s say you are 40 years old, and you have already saved $10,000 in your company 401k plan. You would like to retire at 67, and have retirement income of 75 percent of your current income, which is $40,000. The lump sum needed to produce that income at age 67 will be $550,000. This will give you $30,000 per year, for 23 years, or to age 90. Assumptions used here are: 6 percent return on your savings, 3 percent increase for inflation per year, and a tax bracket of 15 percent.

So the question remains, how do I get to $550,000 at age 67?

You would need to save, $5,500 per year, or $105.76 per week, for the next 27 years, and increase that amount by 3 percent per year as you (hopefully) get annual raises at work. This represents about 14 percent of your annual pay. Fortunately, some employers match your contributions, which reduces the amount you need to contribute. This amount could also be reduced by starting earlier, increasing the lump sum amount, and using Social Security to supplement your retirement income.

For more information that is specific to your situation, please contact our office for a no cost or obligation financial review.

Jonathan D. Stewart is president of JD Stewart Financial Inc. in Saco, telephone 207.283.0843, and Windham, telephone 207.894.5523.


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