How Healthy Is Your Retirement Outlook?

In a 2002 survey conduced by the Employee Benefit Research Institute and the American Savings Education Council, less than 25 percent of Americans ages 40 – 59 had saved $100,000 or more. Only a third of the workers in that age group had tried to figure out how much money they will need for retirement.

Let’s say that John and Jane Doe have $100,000 in their 401k) plan at the time they retire. We will assume that they will receive a return of 7% when they retire---that will give them a total of $7,000 a year or about $580 a month. They will also receive a monthly check of about $1450 a month (the average for a couple) from Social Security. Their total monthly income will be $2,030. Their yearly income will be $24,360. Will they have a fun filled retirement on that income?

Let’s up the ante. Let’s say that John and Jane Doe have $250,000 in their 401(k) plan at the time they retire. We will assume that they will receive a return of 7% when they retire---that will give them a total of $15,000 a year or about $1,250 a month. They will also receive a monthly check from Social Security of about $1,450 a month. Their total monthly income will be $2,730. Their yearly income will be $32,400. Will that be enough?

What’s the moral of this story? A lot of the experts feel that many people underestimate the amount of money they will need to save for a financially secure retirement. That’s why when we ask people how much they’ll need to save for retirement, they often don’t really know.

Many people think they’ll keep working in retirement. We know from recent research that an increasing number of people are continuing to work in retirement. But, the surveys show that fewer people actually end up working in retirement. And they there are the unknowns. Life expectancy is going up. How will inflation impact a long retirement period? And, how about taxes? Savings in 401(k) plans get taxed starting at age 70 ½.

How important is it to know how much money you will need in retirement?

Extremely. As the eminent baseball player, philosopher Yogi Berra once said. "If you don’t know where you’re going, you might end up some place else." And we might add---"That may not be a place you want to visit."