Making retirement a reality series: Part two
How much will I need for retirement?
In part one of this series, the importance of defining your retirement was discussed. This article will focus on how to estimate how much you will need to save for the retirement of your choice.
Start by visiting the Social Security Administration webpage or calling at 1-800-772-1213 to see what your projected monthly benefits will be. Keep in mind if you retire before your “full” retirement age your benefits will be reduced by up to 30 percent. If you postpone or delay your social security benefits beyond your full retirement age, you can earn credits that will increase your monthly benefit by about eight percent each year that you delay until you reach age 70.
There is a common misconception about Social Security benefits. Many people believe that these benefits will pay for most or all of their retirement. Per the United States Department of Labor, Social Security pays benefits that are on average about 40 percent of what you earned before retirement. Ultimately, paying for your retirement is your responsibility.
(Tip: A comfortable retirement is a combination of: Social Security, employer-based retirement plans, personal savings and investments.)
Next, estimate how much you will need to save to “buy” the retirement of your choice. Per the United States Department of Labor “…probably the most expensive thing you will ever buy in your lifetime is your…retirement”. There are numerous resources to help you estimate your retirement needs such as worksheets, software programs, online resources such as the Ballpark E$timate®, and reputable financial planners or advisors. Keep in mind that financial experts estimate that in retirement you will need about 70 percent of your preretirement income and lower income earners will need 90 percent or more, to maintain your current standard of living once you retire.
The information you gain from the above estimators will help you identify how much you need to save on a monthly basis for retirement. If you do not have a budget or spending plan in place visit MI Money Health for a variety of financial resources. After completing your spending plan you may identify the need to cut costs and reduce spending. Consider using the Plug Spending Leaks Worksheet to find extra ways to save for your retirement.
The next article in this series will address “Steps to “buying” a secure retirement.” For a variety of financial resources, including how to assess your financial health visit Michigan State University Extension. In addition, Michigan State University offers money management and homeownership classes. For more information about classes offered in your area visit MI Money Health.
Other articles in this series: