How Much to Save for Retirement
Friday December 5, 2008
With the recent economic slide, many people are wondering how they will ever retire. Although watching your 401(k) and IRA balances dwindle is never a happy time, the occasion does provide us with an excellent opportunity to revisit some of the important retirement planning basics. One such example is the importance of choosing the right way to save while working.
Yet while many folks understand that in order to retire they're going to need to save something, relatively few have a good understanding for how much to save. Here are six straightforward questions to guide your retirement planning saving rate.
Make sure your spouse answers them independently. Then, compare your answers.
Interesting conversation?
Yet while many folks understand that in order to retire they're going to need to save something, relatively few have a good understanding for how much to save. Here are six straightforward questions to guide your retirement planning saving rate.
Make sure your spouse answers them independently. Then, compare your answers.
Interesting conversation?
The questions are appropriate but the linked article reverts to the rule of thumb 4% retirement withdrawal rate. I think that the analysis of an appopriate withdrawal rate needs to go way beyond such a rule. Consumption smoothing is another way to look at this entire issue.
It depends on how you envision your retirement. How much money will you need to cover your basic expenses? Will you have income from pension, SS, or will you work during retirement?
Mike Bonacorsi
Author of Retirement Readiness
@Mr. Goto: Thanks for your comment. I agree that 4% is just a rule of thumb and it comes with its inherent limitations. Still, it’s a decent starting point for folks looking for an initial target. Consumption smoothing allows for the necessary refinement.
@Mike: Amen. One’s vision compared to his/her readiness is the fundamental question. Thanks for your sharing your thoughts.
In my opinion, it pays to take a second look at how one views financial safety in retirement. For many it is the preservation of their principal but to me it is the preservation of my buying power.
When I take out my 4% withdrawal, I need that amount to outpace inflation and taxes over the long haul.
A portfolio dominated by dollar-based assets (bonds, CDs, annuities) won’t cut it since inflation will eat away the buying power. Even worse, whenever the dollar collapses you wind up with a portfolio of worthless assets.