In order to live comfortably in retirement, we have to save during our working years. What we don’t know is how much we need to save to have enough during retirement and how much we can withdraw from our savings so that we can enjoy our “golden years” while making sure our money lasts as long as we do.
The skilled and seasoned Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer understand that financial problems can happen to even the most well-intentioned people. We believe that it pays to be knowledgeable in order to make decisions that can help you build for the future while working and prevent sinking into debt once you are retired. We offer a free consultation to evaluate your entire financial situation and determine which debt-relief solutions will work best for you.
Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation.
How Much Should You Save?
The standard for withdrawing from your savings is known as the 4% rule, established in the mid-1990s. This rule says that if you begin by withdrawing 4% of your savings during your first year of retirement, and adjust subsequent withdrawals according to the inflation rate, the chances are your savings will last for 30 years. So if you retire at age 65 with a good nest-egg, you will have money to last until you are 95. While the 4% rule might not work for everyone, it does provide an idea of how much of one’s savings can be withdrawn.
Do I Have Enough to Live On?
In general, experts recommend that you prepare to spend about 70% of pre-retirement income when you are retired. Your living costs will probably be lower because you no longer have to save for retirement; you probably will pay less taxes and transportation costs if not commuting to work; and you may have paid off your mortgage or downsized. However, especially when you first retire, spending may rise because you may travel more and spend more on leisure activities. So are you in good shape for retirement; at what age can you stop working; and how much do you need to save while you are still working?
The answer depends on the amount you have saved and the amount you will have coming in retirement in the form of Social Security benefits, pensions, and other income.
For example, if you are in your sixties and you have $500,000 saved, the 4% rule would allow you to take out roughly $20,000 a year in income. If you will receive the average social security payment of $16,000 yearly, that adds up to $36,000 a year. Is that enough to maintain your lifestyle?
That $36,000 is about 70 percent of $51,000. If that figure is a lot lower than your income while working, the chances are you won’t manage on $36,000 in retirement. In that case, you probably should postpone retirement for a few more years and save as much as you can during that period.
If you are middle aged and expect to work another 20 years, you can use the 4% rule to figure what you need to save. If you think you will need $50,000 a year and social security will be $16,000, your savings will have to bring in the $34,000 difference. According to the 4% rule, you should multiply $36,000 by 25 to arrive at a savings goal of $900,000 to give you the retirement income you want.
Be aware that the 4% rule is just a starting point. To make sure your money lasts, you may want to withdraw less, and if you have managed to save more than enough, you can probably withdraw a larger percent. What is important is to have some sort of understanding that will help you develop a savings and withdrawal strategy during your working years, so you don’t run out in retirement.
Rather than trying to estimate how much you should be saving, you can utilize some helpful savings tips from The Boston College Center for Retirement Research (CRR) brief, How Much Should People Save? In general, they advise contributing 15 percent of pay to a 401(k) plan if you earn average wages, start saving in the mid-30s, and retire at age 65. This includes any employer-matching contribution.
CRR also provides a table showing target saving rates at different ages to receive the 70 percent of your working income. For example:
If you start saving at age 25 and you …
- Retire at 62: Save 15 percent of pay
- Retire at 65: Save 10 percent of pay
- Retire at 67: Save 7 percent of pay
- Retire at 70: Save 4 percent of pay.
If you start saving at age 35 and you …
- Retire at 62: Save 24 percent of pay
- Retire at 65: Save 15 percent of pay
- Retire at 67: Save 12 percent of pay
- Retire at 70: Save 6 percent of pay.
If you start saving at age 45 and you …
- Retire at 62: Save 44 percent of pay
- Retire at 65: Save 27 percent of pay
- Retire at 67: Save 20 percent of pay
- Retire at 70: Save 10 percent of pay.
Unfortunately, too many people are not saving enough for retirement. According to Investopedia, the average amount of money saved by people aged 55 to 64 is just $104,000, only enough to produce an income of $310 per month. This falls short even when combined with the average Social Security payment.
Contact us for Help and Guidance
The experienced Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer know that making sound financial decisions can be difficult, and too many people wind up having insufficient funds to retire, despite their best efforts to work hard and save.
We recognize that everyone’s individual situation is different, so we offer a FREE INITIAL CONSULTATION to evaluate your entire financial situation and make sure you are aware of all your savings and investment options. We will examine your income, your debts and your goals and help you find the best and most affordable path to a brighter financial future.
Delaying can only make your situation worse, so take control of your financial future and learn more about how our firm can be of assistance today. Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what financial solutions will work best for you.