Related LinksA retiring couple spending $100,000 a year today will need $2.5 million to live comfortably throughout their lifetimes.
Are you financially prepared for retirement? Most Americans aren’t, according to the Employee Benefit Research Institute’s 2006 Retirement Confidence Survey.
One of the best ways to get ready: Start investing now. The sooner you start saving for retirement, the faster your money will have the opportunity to grow.
Time is clearly a key component in accumulating retirement assets. Here’s what $1,000 invested today will be worth over time, assuming a 7 percent average annual return.
Your retirement is likely to be a lot more expensive than your Parents’. Why?
- We’re living longer. In the 1930s, only 4 percent of the population lived to see 65, according to American Demographics. Today, if you retire at 65, there’s a good chance that you’ll need for your assets to support you for 30 years.
- We’re more active. Tomorrow’s retirees don’t intend to spend their golden years on the couch. The cost of buying the perfect vacation home, honing your sailing skills and tracking down the best Bordeaux add up to an expensive retirement.
- We plan to spend more. Traditionally, retirees have figured they could live on 70 percent to 80 percent of their pre-retirement budgets. Now, 94 percent of Americans would like to live at the same level of comfort — and expense — in retirement as they did during their working lives, according to an industry survey.
How much will you need?
If you plan to live at the same level of comfort as you do today, use these steps to determine the assets you’ll need in retirement.
| Stephen Retiree | Years to retirement | Inflation factor | ||
| 1. Write down your current annual budget. | $164,000 | 5 years | 1.03 | |
| 2. Subtract the annual amount you expect | - $24,000 expected Social Security = $140,000 | 10 years | 1.0609 | |
| 15 years | 1.0927 | |||
| 3. Divide the remainder by .04, a sustainable withdrawal rate. | /.04 = $3,500,000 | 20 years | 1.1255 | |
| 25 years | 1.1593 | |||
| 4. Multiply that number by your inflation factor (see far right column) to get an idea of the amount you’ll need for retirement. | x 1.0927 = $3,824,450 | 30 years | 1.3439 | |
| 35 years | 1.5580 | |||
| 40 years | 1.8061 | |||
| * Assumes a 3% average annual inflation | ||||
Tomorrow’s retirees have fewer resources
Traditionally, Americans have funded their retirements from three sources: pension plans, Social Security and their own investments.
Today, affluent investors finance nearly three out of four retirement dollars with their own investments, according to an industry survey:
- Personal savings & investments: 29%
- Self-established retirement plans: 15%
- 401(k) plans: 13%
- Sale of business: 8%
- Sale of real estate: 7%
What will be available for you when you’re ready to retire?
The best way to fund the retirement of your dreams is to start now. To develop a plan for achieving your retirement goals, contact your financial advisor, call 800/595-9111 or visit northernfunds.com.
