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Sunday, June 16, 2013

Are You Saving Enough to Retire?

I have written before on the subject of retirement savings estimates.  So many of the calculators put out by investment firms are scare tactics designed to help market their products.  Today via a New York Times article I came across the non-profit Employee Benefits Research Institute and their calculator.  I recommend it highly.  Similar instruments from investment houses tell me I have 19 - 20% of what I need for retirement already saved.  This calculator shows 47%, and this with 20 years left before my intended retirement date.

I don't recommend this calculator because it is telling me something I want to hear: I am recommending it because the organization behind it is not trying to sell us anything.  That gives it great credibility in my eyes.

Of course no calculator can take into account other non-investment events or strategies you can use to prepare.  Moving to a smaller house, moving to a smaller town with a less-expensive real estate market, inheritance from parents, appreciation of the value of your tangible assets such as your home, etc... You should consider all such options when making your plan.The main message, as in prior posts, is to clearly see your "gap" between current assets and what you'll need; then put together a practical plan to close that gap.

We will be the first generation in modern history to try and retire without a defined pension plans, as 401(k) plans did not exist before the mid 1970's and companies did not do away with their pensions in large numbers until the early 1980's.  You need to recognize the need and make a plan, but not throw up your hands and give up because some investment company calculator said you needed to save $2million in the next 20 years.

1 comment:

Joe Sheehan said...

Jim, the book "Your Financial Ratios", which talks about 8 ratio tests to help see if everything is OK, also provides some reasonable guidance that is ad-free. I've found it very helpful in addition to all the calculators on the web.