How Much Money Do I Need To Retire?
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How Much To Retire?
You may be better prepared than you think. Saving 15% is a very good start.
Before you wax nostalgic for the good old days when you could count on pensions and Social Security to support you in your golden years, remember that those days were relatively brief -- not so much an era as an aberration.
The whole concept of retirement is fairly recent, an experiment that began with the creation of Social Security in 1935, observes Ken Dychtwald, a gerontologist and authority on aging in the U.S.
With the country facing massive unemployment during the Great Depression, Social Security was a way of providing older workers with guaranteed income so that they could leave their jobs, freeing up slots for younger workers.
"No one considered whether a life without work would be satisfying or sustainable," says Dychtwald. Even when traditional pension plans were at their peak in 1985, fewer than half of Americans working for private companies were covered.
As the leading edge of the baby-boom generation turns 60 this year, "it's time to retire retirement," declares Dychtwald, author of The Power Years: A User's Guide to the Rest of Your Life.
And he doesn't think that's necessarily a bad thing: "Like a great dessert, too much leisure can make you sick after a while. Boomers don't want to fade into obscurity. They want to trade success for satisfaction."
Much of that satisfaction will come from continuing to work, either by downshifting to a part-time schedule or cycling periodically between employment and leisure. It's all about remaining connected, vibrant and useful. Not incidentally, it's also about continuing to earn money, now that only 17% of those employed outside government entities can expect to receive traditional pension checks in retirement. And the new retirement is about saving more.
This modern model rests on a solid foundation. Nearly 80% of employees participate in their work-based retirement plans; 401(k) plans alone have more than 42 million active members. All told, more than $13 trillion has been stashed in a variety of public and private retirement plans, more than double the amount invested 10 years ago (and despite a brutal bear market).
That's the big picture. How much will you personally need in order to finance your life in retirement? Depending on your age and economic circumstances, your "number" could be 15% -- the percentage of earnings young workers should be socking away. Or 80% -- the amount of pre-retirement income you should aim to replace when you leave your job. Or $1 million (or more) -- the size of the nest egg needed to generate that much income.