In a perfect world, you would start saving for retirement with your very first paycheck and keep at it until the day you leave your job, some 40 years later. But we all know we’re not living in a perfect world. The good news is that it’s never too late to get started on or build up your retirement savings. It’s also never too early to get started. Really, it’s always a good time. Anyway… here are the basics on what you really need to retire.

Where Marketing and Retirement Are Aligned

As marketers know, the answer is always, “It depends.” But a good rule of thumb is to save 15% of your income — 20% if you can swing it — which includes any matching retirement funds from your employer. There is also a series of guidelines aimed at helping you figure out whether or not you’re on track for retirement:

• By age 30, you should have 1x your income socked away for retirement
• By 40, 3x
• By 50, 6x
• By 60, 8x
• And by retirement, 10x

Based on these benchmarks, you’ll typically be able to replace about 80% of your pre-retirement income for a period of 30 years. Of course, not everyone will hit those marks on schedule. That’s why they’re guidelines and not rules.

While alarming studies from the EBRI Retirement Security Projection Model and the National Retirement Risk Index show that only about 50% of the population will not have enough to maintain their current lifestyle in retirement, you’re not like everyone else. You’re financially savvy because you save at a credit union and read our personal finance blogs each week. Right? RIGHT? You’re working hard on your (financial) gains and are on track for a sweet retirement in the Tuscan countryside… or wherever. In fact, “retirement can be a lot cheaper than your working regular life,” says Annamaria Lusardi, Professor of Economics and Accountancy at The George Washington University School of Business. “You may no longer have to provide for your children, you might not need two cars for the household anymore if both of you aren’t working, and you can even cut costs by moving into a smaller home.”

The point? One size does not fit all. Here are some guidelines for figuring out whether you are saving enough.

Remember, It’s Your Retirement

Say it with us, “It depends.” What do you want your retirement to look like? If you haven’t asked that question with your spouse or partner, if you have one, it’s time. (Here’s how to have money talks without arguing if you need to prep for the conversation.) Only once you envision it can you begin to price it out. That’s when you’ll answer the questions about things like where you’ll live (in your big family home or a smaller one that will allow you to sock some of that prior home equity into savings), whether you’ll work (as many retirees do), and if you’ll move (and lower your taxes as a result).

The question of when you’ll retire is similarly important. The longer you continue to work, the more time your retirement savings have to grow and the fewer years you’ll have to rely on that stash to fund your lifestyle. Once you’ve got the answer to these questions, sit down with pen and paper (or a spreadsheet if you’re so inclined) and start adding up the amount you’ll need to live. If you’re struggling, a sit-down with a financial advisor can help.

Focus On Income Replacement

Once you’ve got a sense of the numbers, you can begin working on how to get there. Start with Social Security. How much of your estimated monthly expenses will that cover? (If you don’t know what you’re expecting from Social Security, you can get your estimate at ssa.gov.) Many people start taking their benefits at age 62, but waiting means more money every month; for every year you delay taking benefits from 62 until 70, you’ll receive an increase of about 8%. That’s a huge help. Subtract that from the amount you estimate you’ll need to live each month.

Then consider whether you’ll be receiving any pension income. What remains is the amount you’ll want to cover with retirement savings. “Based on the 4% safe withdrawal rule, a million-dollar portfolio creates $40,000 of annual income,” says David Littell, professor of retirement income at The American College of Financial Services. You may need more. But you may also need less.

When Math Isn’t Really Your Thing

So far, we’ve asked you to do a lot of math, so if you’re still with us, here’s your reward. There are dozens of tools and guides to help you figure out if you’ll have enough money to cover your basics. One free (and excellent) online retirement planning tool is the AARP retirement calculator. It takes you through a step-by-step questionnaire that accounts for Social Security and other potential income sources (like proceeds from the sale of real estate and inheritances).

If a little math still makes you nervous, it might be worth the cost of paying a fee-based Certified Financial Planner (CFP) to help you create a customized roadmap and implement suitable strategies. (Here are questions to ask a financial planner before you hire them.)

Make Your Money Work For You

Finally, as you mull over these questions of how much you’ll need in retirement, you also want to be sure your assets are working to get you there. In other words, they’re invested in a way that lines up with your risk tolerance and time horizon. Your investment portfolio should be diversified, made up of a mix of stocks and bonds. Exactly how much of each depends on how long you have until retirement and how much risk you can withstand. If you have many years to go, you can take more risk, which means your portfolio may be more heavily weighted toward stocks and other high-growth asset classes. (A target-date retirement fund is a one-and-done solution that can help keep your mix in check.)

Bonus

Did you know that we have 73 retirement and financial planning blogs? We do. Start here to scroll through them.

by Michelle Skinner, MCU Communications Director