5/24/2010

80% of Employees Not Prepared for Retirement

According to a study by Hewitt Associates 8 out of 10 people will reach retirement and find their savings insufficient to meet their needs. The study indicates that if you consider inflation, and increasing medical costs in retirement years that workers need to have 15.7 times their final salary in savings prior to retirement.

If you factor in Social Security, you may be able to reduce your savings to 11 times. Note: If you are under 45, you can expect that by the time you retire that Social Security and Medicare will undergo some dramatic transformations resulting in a reduced payout.

Let consider how that could impact you: In our area, the average household income is approximately $55,000 and the average retirement savings is $50,000 (assuming two workers with $25,000 each in retirement accounts). In order to have funds for your retirement, you would need to have $863,500 in your retirement accounts (for the household).

The good news is you already have $50,000 saved, the bad news is you will need $813,500 more. Let's be optimistic and say that you will have $258,500 that will come from Social Security (4.7 times your annual income). Now all you will need is an additional $555,000. You can either rub your magic gennie, or play the lottery in hopes of winning the jackpot, or you can make plans now to prepare.

How much you need to save depends on how old you are. At age 20, you could save as little as $25 per week 2% of your income. By age 35 the amount grows to 8% of your income, at age 45 you need $217/week or 20% of your income and by age 55 you would need to be saving a whopping $697/week or 66% of your income to meet your retirement needs.

Moral of the story, if you are younger, start now and you can make time and compounding work for you. If you are older, you will need to rethink your retirement strategy to either find additional sources of income for your retirement or to find ways to cut retirement costs. If you want to find out how much it will really cost for you to retire on your current income, check out the ball park estimator from Choose to Save http://www.choosetosave.org/ballpark/. You can input your own estimations to find out how much you need to save for retirement.

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