How are you doing when it comes to saving for financial security and retirement? Lack of progress can often be attributed to unclear goals.

Most people have a goal of financial security in their retirement. What they don’t have is a specific goal of how much money they must save annually or the total they need to accumulate by their target date of retirement. Establish goals by making a written saving and investing plan, annually reviewing it, and adjusting either the plan or the outcome. Realizing progress toward your goals will reinforce your commitment and motivate you.

Before formulating a savings plan, calculate how much money you will need to accumulate.

How much money you need to retire depends on your lifestyle and desires. There are some excellent studies and calculators on the internet that will guide you in determining the amount you will need to save for retirement. You may wish to simply estimate that in retirement you will spend 75% of pre‐retirement income. The good news is that 75% is applied to your income AFTER deducting the amount you save annually for retirement. For example if a couple is making $100,000 annually and saving $15,000 of that for retirement, an estimated $63,750, 75% of $85,000, should be planned on for annual spending in retirement.

How much you need to retire is also dependent on the future of social security (SS). The Chief Actuary of the SS Administration in his report (available on line at states “benefits are now expected to be payable in full until 2037 at the point reserves are used up, continuing taxes are expected to pay 76 percent of scheduled benefits.”

Using the Quick Calculator at, a person with current wages of $100,000 (the calculator assumes a past comparable earnings history) retiring this year at age 67 would receive $2,281/mo. or $27,372/yr. Assume the spouse is the same age and receives 50% of the wage earning spouse’s benefit. The total of $41,058 gross reduced for Medicare results in cash of about $38,000.

Using the estimated annual social security benefits above of $38,000 for the couple in the example, $25,750 would be needed in the first year from an investment portfolio or annuity to achieve the post‐retirement spending of $63,750.

Retirement planning experts generally recommend spending about 4% of invested assets in order to sustain the cash flow needed throughout retirement. Dividing $25,750 by 4% equals $643,750, the amount of accumulation recommended.

The above calculations are based on receiving social security and retirement occurring this year. For future retirees, the effects of inflation must be estimated.

Let’s assume the wage earner is 42 years old, retirement is 25 years away, inflation of 3.5% per year and social security is as projected by SSA’s Quick Calculator (i.e. keeps up with inflation ‐ somewhat), but is reduced by 25% for a possible social security benefit reduction. The estimated future combined benefit after a benefit reduction is $81,600.

You can use a present value calculator on line to make the future value of money calculations:

Twenty‐five years to accumulate $1,726,400. It is clear why one must get started early! Were you thinking saving $15,000 out of $100,000 of wages was a stretch?

And remember, retirement spending assumed your current lifestyle spending was after savings.

Having saved nothing until age 42 and beginning saving $15,000 per year, increasing the amount save 3.5% annually and earning a return of 7% year after year, which is unlikely, accumulates to $1,541,410.

You must have a viable plan. There is no guarantee a plan will succeed. But if the plan doesn’t work, a successful outcome is even more unlikely. Adjustments are obviously required in the above plan for the 42 year old.

What To Do?

∙ Engage a professional.

∙ Have separate savings for emergencies; don’t raid your retirement plan.

∙ Prepare a budget by month annually, and monthly record your actual expenses and find opportunities to save (you can get a template for a monthly budget from our website under resources tab)

∙ Seek out other tools and ideas, e.g. your retirement plan’s mutual fund website.

∙ Read some good books, like the Compound Effect by Darren Hardy for tips on saving.

∙ Many employers offering retirement plans match 50% or more of contributions up to 3% of wages. That is $3,000 on top of the $15,000 savings in the example, or a 20% increase. That alone increases the accumulation for the 42 year old above by

∙ Saving $15,000 through a retirement plan will reduce current taxes about $3,750, so it really only costs you $11,250 cash currently.

∙ Plan on working longer if you can’t possibly save enough.

∙ Voluntarily adjust your lifestyle to live more frugally now or you will be doing so involuntarily in retirement.

John Rothenbueler is a partner with Alegria & Company, PS.
He can be reached at

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