Kelly Mould The Ladder 12 03



There is no shortage of advice about retirement: the ideal age to retire; how much you should save for retirement each year; the amount your nest egg should be when you finally leave the work world.

Common recommendations include saving 15 percent of your gross income (or perhaps more); accumulating eight times your annual salary (or likely more); working until age 65 (or older).

In short, there’s a lot of advice, many “expert” opinions but no single, one-size-fits-all solution.

It can be difficult to sort through facts, figures and even some fiction and, more importantly, determine the best choices for you and your family.

First, some background. On the positive side, individuals in the U.S. are saving more these days, perhaps surprisingly, led by millennials.

A 2017 Bankrate Financial Security Index survey showed 23 percent of adults said they had increased their retirement savings in the previous year, including 30 percent of those ages 18 to 26.

But are we saving enough? For many, the answer is no.

According to the 2018 Northwestern Mutual Planning & Progress Study, 21 percent of American adults have no retirement savings at all; one third of baby boomers have zero to $25,000 in retirement savings; and nearly half are unprepared for the chance they could outlive their savings.

With average life expectancy now at 76 for men and 81 for women, the key to retirement saving might lie in making sure you begin saving early in your career and increase your saving rate over time, especially as your income rises.

Data from the Economic Policy Institute 300 examines retirement savings by age, revealing that even those who are increasing their retirement savings still might come up short.

How much to save

Many financial experts recommend saving the equivalent of your annual salary by age 30, three times your salary by age 40 and six times your salary by age 50.

Those years also coincide with couples or individuals having higher living expenses associated with having children and saving for college, not to mention paying off their own college debt.

Even though the recommended retirement savings continue to multiply over time, and as earnings increase, the research shows many people fall behind, especially if they experience job loss or career interruption for other reasons.

With even savvy savers challenged by rearing children and providing for their education along with other family needs, what are the best ways to plan for retirement?

A trusted adviser can be a key resource, offering guidance as you chart your course.

Estimating expenses

An important factor in a successful retirement plan is to estimate to the best of your ability how much you will need to spend — and for how many years. That does mean considering how long you will live — admittedly a difficult topic.

Your estimate should be based upon real spending — for example, if you intend to travel or have a second home during retirement, you’ll need to plan for that in addition to your basic living expenses.

There are multiple ways to calculate how much you will need.

Simplistic methods suggest targeting a multiple of your final annual gross salary, such as 10 to 20 times that amount.

For individuals still in their 30s or 40s, others suggest saving 10 percent of annual income for basic retirement expenses, 15 percent for a more comfortable lifestyle and 20 percent for potential early retirement.

Another option is to target your savings to an amount that can generate 70 to 90 percent of your pretax, pre-retirement salary annually.

You then can calculate how much you need to save each year to reach that goal. But these targets might not be realistic in evaluating your actual needs in retirement income.

Comprehensive plan

The key to determining your retirement needs is a comprehensive financial plan that considers both anticipated income and expenses.

The income side includes all sources, such as company retirement plans or pensions, 401(k)s, IRAs or other retirement accounts, insurance, investment accounts, cash reserves and possible inheritances.

The expense side looks at normal expenses for mortgage, food, cars, health care, clothing, travel, entertainment and similar items.

The plan then projects whether your nest egg — based on your projected income, expenses and life expectancy — is likely to last.

Individuals nearing retirement can consider delaying or working part time to make savings last longer. But there are other steps toward a comfortable retirement as well.

Are you ready?

Examine your financials, including all account balances, your income tax rate, average return on investments, current income and current rate of savings.

In addition, list your likely expenses for regular living costs such as housing, food, insurance, medical, clothing and entertainment.

Estimate what you can put aside or are likely to need for unexpected costs such as an accident or serious illness, home and auto repairs or nursing care.

You then can project your likely income at your planned retirement date and whether you can afford the lifestyle you desire.

If you come up short, you can adjust your savings and spending to try to catch up or delay your retirement date.

Boost your savings

Most individuals whose employers offer 401(k) or other retirement plans realize they should save at least the amount of an employer match.

But as you approach retirement, it’s best to save as much as possible; in 2019, the maximum is $19,000 per year, with an additional $6,000 allowed for those over age 50. Put any additional savings into IRAs, Roth IRAs or other retirement accounts.

Leverage your pay raises

If you receive a raise, put all or some of it into your retirement savings if you can. You won’t miss the money and it builds your nest egg.


Consider diversifying risk with a mix of investments such as stocks, bonds, international investments and even some alternative investments.

As you near retirement age, a more conservative approach may compensate for shorter recovery windows for losses.

Scrutinize spending

Simplistic, yes — but worth considering. Do you need the latest cellphone? Must you take an annual spring break or ski trip? Do you need a new car every few years? Can you dine out less often?

Consider delaying Social Security benefits

Although most individuals can begin claiming Social Security benefits at age 62, you can increase your eventual Social Security income significantly by deferring.

For example, according to www.ssa.gov, if your full retirement age is 66 and six months, and your monthly benefit at that age is $1,000, delaying to the maximum of age 70 increases your monthly benefit to $1,280 — a 28 percent increase.

In contrast, if you take Social Security early, at age 62, your monthly benefit is reduced to $725, a 76 percent decrease vs. waiting until age 70.

Test your plan

Consider potential unexpected occurrences and worst case scenarios to help determine whether you have the financial means to cover costs.

For example, project whether you can handle a serious illness, the death of a spouse or moving out of your home due to a natural disaster or because you need assisted living or nursing care.

Be flexible

Even the best, most comprehensive plan can change, either by circumstance or by choice.

Perhaps your income is higher than expected and your increased savings mean you can travel more or buy a vacation home in retirement, or your view of an ideal retirement changes from living in a coastal villa abroad to a cozy condo in your hometown.

Ultimately, saving early and often, and working with a trusted advisor to identify your financial needs — and goals — can help you reach a comfortable retirement on your terms and on your timetable.

Kelly Mould is senior vice president, wealth fiduciary, with Johnson Financial Group.