Thursday, November 11, 2010

Life Expectancy & Retirement Savings Goals

Many people are challenged by the question "how much should I save for retirement?" One of the primary obstacles to answering this question is being able to predict how long one might live. Also, who wants to face the fact of their own mortality? Nevertheless, I came across a handy-dandy life expectancy calculator at According to the quiz, I should prepare to live to 102 years old (or more). That means I have 76 more years of living...woo hoo!! It also means that - assuming I retire at 67 years old (perhaps the new normal for retirement age for my generation?) - I will need to prepare for at least 35 years of income. That's quite a bit of time...

Naturally, my next step was to use a retirement calculator to get an idea of how much money I should aspire to have (at a minimum) for retirement. Here are the results from CNN/Money's Retirement Calculator:
In retirement, you will need $36,400 a year in income. (Because of inflation, in 2051, that will be equivalent to $122,300.) 

Part of that income will come from your Social Security and/or pensions. To produce the rest, you should build up your nest egg (including your 401k, IRA and other savings accounts) to $306,084 by the time you retire. (In 2051, that will be equivalent to $1,028,413). 

To save $306,084, your investments need to gain an average of 3.04% from now until retirement. We estimate that there is a 100.00% chance of this happening."

Sadly, I think the idea of Social Security benefits being paid out to me is laughable, so I should prepare to pick up the $21,825 in expected yearly benefits. Currently, my only retirement contributions are $100 per pay period (i.e. 2800/year) to my 403(b) (luckily, I receive a partial match from my employer). I am not actively contributing to my Roth nor my regular brokerage account because I'm focusing my funds on debt elimination (well, my car note; I also have a massive student loan). That said, the idea of living past a century and having to save and invest early to be prepared for it is a bit daunting to me. Suffice it to say, I am well aware that I have to get a 'move on' with significantly increasing my contributions (to the employer-sponsored plan, IRA and regular brokerage account).

How do YOU take the intimidation out of retirement planning?

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