Critter Corner: Are Your Retirement Savings Are on Track?

Dear Oakley,

My husband and I are hoping to retire in the next five years, but we’re not sure if our retirement savings are on track. Are there any useful benchmarks we can take a look at to give us a sense of how we are doing? Thanks so much for your help!

Ahn Trak

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Dear Ahn,

Fidelity Investments, T. Rowe Price, and J.P. Morgan all created benchmarks based on ages for people in their 50s and 60s. These are not the same for everyone, as you can imagine, as everyone’s situation is different. They can be useful, however, to give you a sense of how you’re doing to reach your goals.

To set your own retirement savings benchmark, here are some things to consider:

• It is important to consider how much you’ve already saved for retirement and your current age. Then, you can compare your savings against your current income for goal-setting purposes.

• Another benchmark concept is that you should aim to replace nearly 80% of your current annual income in retirement, so you can maintain your lifestyle once you retire.

• An unknown to consider is how long you will live and how long your savings should last. For a guesstimate, you can use the Social Security Administration’s Life Expectancy Calculator.

• Another widely used benchmark, to help you determine how much of your retirement savings you can afford to withdraw each year in retirement, is The 4% Rule. As the name indicates, it suggests that you withdraw 4% of your retirement balance annually (adjust for inflation each year after the second year). Some economists say that 4% is too risky and recommend more like 3% a year under current economic conditions.

How much should you save for retirement?

When determining how much you need to save, it is important to consider the amount you are saving, other sources of income, and your mix of assets.

• Experts suggest saving at least 15% of your pre-tax income annually, if you can;

• Always factor in your other sources of retirement income, such as Social Security benefits, employer pensions, investment and retirement accounts such as 401(k)s and IRAs and any part-time employment earnings;

• Consider the percentage of your retirement savings that is in stocks, when thinking about how high your portfolio’s rate of return will be.

If you discover you’re not on track, don’t lose hope. Focus on what you can do to help get back up to speed. That might mean saving more each year, opening or funding a retirement account, investing less conservatively, or using a Health Savings Account to save for retirement and for medical costs.

Hiring a good financial adviser who is also a Certified Elder Law Attorney, such as Evan Farr, could be very helpful too to show you ways to get on track and work with you to stay that way!

Hope this helps,

Oakley