| Back at the turn of the 20th century, life expectancy | | | | per year of pre-tax income during retirement. |
| in the US was a mere 49.2 years old. Recent studies | | | | $1 million+ |
| show that life expectancies have risen dramatically | | | | Aim high with at least one million dollars in your |
| since then and can reach well over 80 years old | | | | retirement portfolio. It may seem that this amount is |
| today. If you plan to retire at 65, that is quite a long | | | | a fortune, but remember that inflation does erode |
| time you will be in retirement. For most of us, life | | | | savings over time. Estimate future inflation and make |
| would be ideal if interest rates and dividends would | | | | sure that your income will always cover your |
| reach the point to cover all of our expenses. But in | | | | inflation-adjusted expenses. |
| the imperfect world of inflation, income needs to be | | | | One good retirement instrument to use to stay on |
| reinvested in order to replenish starting capital every | | | | track is fixed indexed annuities with income riders. |
| year, to build our retirement nest eggs. | | | | These vehicles provide the potential for gain, protect |
| A snapshot of to today's retirement model includes | | | | against loss and assure growth for the purpose of |
| nearly 80% of employees participating in work-based | | | | providing future income. However, if you make any |
| retirement plans and 42 million people are active | | | | withdrawals before you're 59.5 you'll get socked with |
| members of 401k plans. Additionally, more than 77% | | | | income tax and a 10% IRS penalty. |
| of retirees and those approaching retirement age; | | | | The 4% RuleThis approach suggests that if you |
| accounting for the country's financial assets. That | | | | withdraw only 4% of your savings in your first year |
| being said, nearly $13 trillion is being invested in a | | | | of retirement, and adjust for inflation in subsequent |
| variety of public and private investment plans. | | | | years, you'll never outlive your retirement nest egg. |
| So then, how much will you need to retire? No one | | | | The logic behind the 4% rule is that if you earn 8% a |
| can predict as to how long you will live, what your | | | | year you'll keep up with spending and inflation. Four |
| financial needs will be or the interest rates between | | | | percent stays in savings to keep up with inflation, |
| now and then. It all depends. It depends on how old | | | | and 4% comes out to pay for your living expenses. |
| you are, on your job and your lifestyle. Though there | | | | The problem is that earning an average of 8% per |
| is no magic number to calculate how much you will | | | | year may be challenging. Over the past decade the |
| need for retirement, there are a few classical | | | | S&P 500 Index has yielded an inflation-adjusted |
| methods that could be taken into account. | | | | -3.5% annualized return and the next decade may be |
| 15% savings | | | | as or more challenging from an investment |
| For young workers under 35, a good rule of thumb is | | | | perspective. |
| to save about 15% of your gross income, so that | | | | The Rule of 25 |
| more than 50% of your salary can be replaced in | | | | You can also estimate how much you'll need to retire |
| retirement. By integrating 401k contributions, | | | | by taking the amount you estimate you will need |
| company matching programs and contributing to a | | | | during your first year of retirement and multiply that |
| Roth IRA, this will set you on solid ground for your | | | | by 25. This will provide a rough estimate of what you |
| retirement years. | | | | will need for a comfortable lifestyle during your |
| The 80% Rule | | | | golden years. |
| To maintain your lifestyle after retirement, about | | | | Conclusion |
| 80% percent is the amount of (net) pre-retirement | | | | Despite whatever approach you use, the key is to |
| income that you should target to be replaced with a | | | | work towards a goal and have a retirement plan. |
| combination of Social Security, personal savings and a | | | | With all this being said, it is always best to start early, |
| pension (if you're lucky to have one). For example, if | | | | and if not early, then now! |
| you are making $100,000 a year, you'll need $80,000 | | | | |