# Crunching the Numbers on Saving for Retirement

If you are nearing retirement or just beginning to plan for it, you may be surprised to learn that you may need 60% to 80% of your annual income in order to maintain your current lifestyle in retirement. Many variables can affect your retirement savings goals, including where you want to live and the activities you plan to pursue. So, how do you determine the amount you may need for retirement and how much you need to save each year in order to reach that goal? The worksheet below is based on calculations developed by the American Savings Education Council (ASEC) and can help you crunch the numbers.

Consider the hypothetical case of Mark. At age 50, Mark earns $50,000 per year. He estimates that during retirement he will need 70% of his income ($35,000 per year) to maintain his current standard of living. While he does not have a traditional employer-sponsored retirement plan, he does expect to earn $5,000 annually as a part-time writer. He also estimates that he will receive $14,500 annually from Social Security. Let’s take a look at how this can work in your situation:

**1.** **Required Income.** How much money will you need per year in order to maintain your current lifestyle? Enter 70% of your current annual income as a minimum.

**2.** **Social Security.** Project an estimated amount you expect to receive from Social Security. You can calculate an estimate of your future benefits online at www.ssa.gov, the Social Security Administration’s website. If you are married and earn less than your spouse, enter the greater of either your own benefit or 50% of your spouse’s benefit.

**3. Employer-Sponsored Retirement Plan.** Enter the amount you expect to receive from your employer-sponsored retirement plan, such as a 401(k) or pension plan, if applicable.

**4. Earned Income.** Enter your estimated annual part-time income in retirement.

**5. Retirement Shortfall.**
*Subtract* lines 2, 3, and 4 from line 1. This is an estimate of the amount of money you will need each year to supplement the above sources of income.

Once you have determined an estimate of the how much you will need in retirement, as well as your shortfall, now you can figure out the amount needed to close the gap. Assuming a 3% constant real rate of return after inflation, a life expectancy of age 87, and Social Security benefits beginning at age 65, the following calculations can help you estimate the total amount you will need for retirement.

*Note: These calculations do not represent the performance of any particular savings vehicle, and they are for illustrative purposes only.*

Keep in mind that **full retirement age*** *(the age at which you are eligible to receive full Social Security benefits)* *is changing*. *For a long time, full retirement age was 65. Due to longer life expectancies, that age is increasing gradually until it reaches age 67. This change began in the year 2000 and affects people born in 1938 and later.

For comparison purposes, let’s return to Mark. He plans to retire in 15 years, at age 65, and has managed to save $45,000. Based on his income requirements and his financial resources, Mark will need to save an additional $254,200 by retirement, or $9,474.40 per year.

**6. **To estimate how much you need to save, *multiply* line 5 (the amount of your retirement shortfall) by the appropriate factor:*

**Anticipated retirement age**: 55 **Multiply by:** 21.0

60 18.9

65 16.4

70 13.6

**7.** Enter the current total of your savings, including any funds in retirement plans such as a **401(k)** or **Individual Retirement Account (IRA)**.

**8.**
*Multiply* line 7 by the appropriate factor:*

**Retiring in: ** 10 years Multiply by: 1.3

15 years 1.6

20 years 1.8

25 years 2.1

30 years 2.4

35 years 2.8

40 years 3.3

**9.**
*Subtract* line 8 from line 6 to find the estimated amount of savings needed at retirement.

**10.** To estimate the amount you need to save each year, *multiply* line 9 by the appropriate factor:*

**Retiring in:** 10 years **Multiply by:** .085

15 years .052

20 years .036

25 years .027

30 years .020

35 years .016

40 years .013

This worksheet is intended to be used as a starting point to estimate what you will need to save for retirement. For specific guidance, be sure to schedule an appointment to develop a tailored plan to your financial goals.

Your retirement may be decades away or right around the corner, but either way, even taking some small steps can bring you closer to your financial future. Determining the amount you need to save each year in order to reach your goal is an important component of retirement planning.

* *Factors provided by the ASEC.*

Your Figures Mark’s Figures

1. $_________ __$ 35,000__

2. $_________ __$ 14,500 __

3. $_________ __$ 0__

4. $_________ __$ 5,000__

5. $_________ __$ 15,500__

6. $_________ __$ 254,200__

7. $_________ __$ 45,000__

8. $_________ __$ 72,000__

9. $_________ __$ 182,200 __

10. $_________ __$9,474.40__