Here's a piece from Yahoo that gives the three questions to ask about retirement savings. I'm going to discuss these in three separate posts so I can adequately cover the issues associated with each.
The first question is "How much income will I need in retirement to maintain my standard of living?" The key points:
Middle-income households tend to need a [income] replacement rate of 70% to 75% instead of 100% mostly because only part of Social Security is taxed and because saving for retirement usually ends once a person enters retirement.
According to the study, this wealth-to-income ratio indicates that people aren't saving enough of their income to finance their retirements. Indeed, the study concludes that 43% of households are currently at risk of not replacing enough of their preretirement income with adequate retirement income.
Wait a minute. You mean people aren't saving enough for retirement? Shocking!
Yeah, right.
Ok, these are interesting and useful points (though they aren't really "new" news), but the question doesn't really get answered. If you would like to see how much income you'll need in retirement, see my post titled How I Set My Retirement Number. It lists the five methods I used to set my number and should give you some pretty good guidance in coming up with your own as well.
And if you want more thoughts on retirement, see Best of Free Money Finance: Retirement Posts.
While the safe spending rate for a diversified portfolio is 4%, a spending rate of 5% can be expected to last 45 years and 6% 30 years. There is however a 10% chance of exhausting it after 20 years. Good enough? Do people have any use for money after age 85?
Posted by: Lord | September 06, 2006 at 02:16 PM