Even though calculating a retirement savings goal is key to pursuing and maintaining a confident financial outlook, the Employee Benefit Research Institute reported in 2013 that just 46% of American workers have figured out how much money they will need to accumulate for retirement.1 And more than half admit that they are behind schedule when it comes to planning and saving for retirement. Are you?
What’s important to realize is that the exercise of calculating a retirement savings goal does more than simply provide you with a dollars and cents estimate of how much you’ll need for the future. It also requires you to visualize the specific details of your retirement dreams and to assess whether your current financial plans are realistic, comprehensive and up-to-date.
The following action-oriented strategies will help you do a better job of identifying and pursuing your retirement savings goals:
- * Double-check your assumptions. Before you do anything else, answer these important questions: When do you plan to retire? How much money will you need each year? Where and when do you plan to get your retirement income? Are your investment expectations in line with the performance potential of the investments you own?
- * Use a proper “calculator.” The best way to calculate your goal is by using one of the many interactive worksheets now available free of charge online and in print. Each type features questions about your financial situation as well as blank spaces for you to provide answers.
An online version will perform the calculation automatically and respond almost instantly with an estimate of how much you may need for retirement and how much more you should try to save to pursue that goal. If you do the calculation on a paper worksheet, however, you might want to have a traditional calculator on hand to help with the math. Remember that your ultimate goal is to save as much money as possible for retirement regardless of what any calculator might suggest. (After all, when was the last time you heard a retiree complain about having saved too much money in his or her 401(k) plan?)
- * Contribute more. Are you among the almost three quarters of retirement savers who say they could set aside an extra $20 each week? If so, here’s some motivation to actually do it: Contributing an extra $20 each week to your plan could provide you with an additional $51,389 after 20 years or $130,237 after 30 years, assuming 8% annual investment returns.2
At the very least, you should try to contribute at least enough to receive the full amount of your employer’s matching contribution (if offered). It’s also a good idea to increase contributions annually, such as after a pay raise.
Retirement will likely be one of the biggest expenses in your life, so it’s important to maintain an accurate price estimate and financial plan. Make it a priority to calculate your savings goal at least once a year.
1Source: Employee Benefit Research Institute, 2013 Retirement Confidence Survey, 2013.
2This example is hypothetical and for illustrative purposes only. Investment returns cannot be guaranteed.
Required Attribution Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.
© 2015 Wealth Management Systems Inc. All rights reserved.