Marijoyce Ryan, BridgeTower Media Newswires
We all know the importance of saving for retirement. By all accounts, consistently saving 10% to 15% of pay in your 401(k) or other retirement vehicle over a long period of time will produce a significant account balance at retirement. This includes what you save from your pay, your employer's matching contribution and other discretionary amounts that your employer may contribute. It also includes the compounding effect of investment returns over the years. Saving at these levels can be difficult and requires discipline, especially when considering many are paying off student loans, buying houses and raising children. Many experts stress the importance of not sacrificing your retirement savings despite these other expenses.
For 2018, the maximum 401(k) contribution is currently $18,500 per year or $24,500 if you are age 50 or older.
Lack of sufficient savings crosses all age groups and income levels. It is not an isolated problem plaguing a specific portion of the population. Reaching retirement without enough assets can be devastating. Northwestern Mutual conducted a study this year and found that 21% of Americans have nothing saved for retirement, and one third have less than $5,000. It further found that on average Americans have $84,821 in retirement savings.
In a 2016 study, Fidelity noted that contributions have improved slightly (when taking into account both employee and employer contributions):
Savings
Age Group Rate
Millennials (25-34) 7.5%
Generation X (35-50) 8.2%
Baby Boomers (51-69) 9.7%
The same Fidelity study recommends striving for 15% total savings rate. So, if your employer is making a 3% contribution, you need to save 12%. However, what is a "target" amount to have in savings? There a handful of ways to look at this and to help you set a goal.
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Salary multiples
This method provides a savings multiple to see if you are on track. It is based on both your age and salary. As each increase, so does the multiple that should be in your retirement account. For example, a 45-year-old with a salary of $100,000 should have four times that salary in savings, or $400,000. A 45-year-old with a salary of $150,000 should have 4.8 times salary in retirement, or $720,000. The entire table is available at https://www.inves tors.com/etfs-and-funds/retire ment/you-need-this-much-retire ment-savings-at-your-age-and-income/.
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Total savings (the 4% Rule)
Here you determine the annual income you need in retirement and divide it by 4%. This lets you know how much you must have in your retirement account. So, if you need $80,000 per year in retirement, your total savings needs to be $2 million.
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Retirement income (the 80% Rule)
This assumes that you will need 80% of your final pre-retirement per year in retirement. See the above rule to help you determine if you will have enough in savings to support this.
All of the above scenarios also assume that you have consistently had your assets invested through the years - in both up and down markets. Generally speaking, having a diversified portfolio of stocks and bonds will help you weather difficult markets and participate in good ones. Your exact investment allocation should be tailored to both your time horizon and risk tolerance.
It is never too late to begin saving for retirement. If you are 50 and just starting, your savings rate will have to be significant. If you are in your 20s, you have a longer time to accumulate and invest, so your savings rate can be lower. Everyone's needs are different, but remember to "pay" yourself first.
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Marijoyce Ryan, CPP, is vice president of fiduciary services for Karpus Investment Management, a local independent, registered investment advisor managing assets for individuals, corporations, non-profits and trustees. Offices are located at 183 Sully's Trail, Pittsford, NY 14534, (585) 586-4680.
Published: Fri, Aug 24, 2018
