What is the right amount to save when aiming for a certain retirement goal?
I am 58 years old earning $100,000 per year and have investments in multiple retirement accounts totaling $686,250. I'm retiring at the age of 65. I am currently investing $16,000 per year in my accounts. I project to have $848,819 in my retirement accounts at the age of 65. I will be collecting $2,200 in Social Security when I retire. I also do not own my home due to my divorce. How much money will I need to hit my projection? Should I be saving more?
If you are starting out with $686,250 and adding $16,000 per year, you should easily have $848,819 in 7 years. In fact, you will probably have more than that based on historical returns of a diversified portfolio.
But I'm not sure that's the question you are asking.
You may be asking if $848,819 is enough money for you. The first step is finding out how much money you think you will need to live on per year. Then deduct your sources of income like social security and any pensions or annuities you may have. What is left is the gap you will need to fund.
Many financial planners have historically advocated a withdrawal rate of 4% from retirement accounts as a safe amount to pull out. I think that is a little high as 3% is a more conservative amount people should consider for their individual situation. 3% of $848,819 would yield $25,465. Combining this with your social security benefit would give you about $50,000 per year.
Your income requirements minus the $50,000 is what you will need to make up either through additional savings before you retire, a part time job in retirement or a drifferent investment approach to yield higher savings.
You should be saving the maximum and live beneath your means. If you are single then you can put 6500 per year into a Roth IRA and a significant amount into your 401(k) plan. You can also put the maximum 4400 into an HSA as long as your health insurance is HSA-compatible. You can keep contributing to your Roth and 401(k) as long as you are working, and you can keep putting money into your HSA until you start with Medicare at age 65 (assuming you do so, otherwise you can keep contributing to your HSA after 65).
If you do all of these things then it won't matter what your target or goals are. You will achieve and surpass them.
If you think you will live to be at least 80 years old then you should delay your Social Security until you reach your 70th birthday. That will give you the highest total lifetime payout especially if you live a long life.
Save as much as you can while still living comfortably. If you max out your retirement plan contribution limits, you can save in individual accounts. Your date to collect full social security is age 67. I suggest you at least wait until full social security retirement age while continuing to save. In the meantime, develop a list of projected wants and needs; detailed budget of your desired lifestyle upon retirement. If you want to buy a home or move to a new area, take the time to shop around. Consult a good planner.
A few things to consider here- what will you need to live on? How much income will your retirement nest egg produce?
From your projection of $848.000 at 65- looks like you may be invested way to conservatively. With proper planning your current assetts, social security and saving until 65 could put your great shape for retirement. You are the final strech to retirement, you really should sit down with a fee-only fiduciary Certified Financial Planner to make sure you have the appropriate investment for your situation, and that you accumulate enough assetts to retire comfortably. There appears to much room for improvement on your portfolio.
Congrats on doing a great job saving, now it time to make your hard work pay off. You are saving enough if you invest well, but not enough if you don't
DAVID RAE, CFP®, AIF® is a Los Angeles-based retirement planning specialist with DRM Wealth Management. He has been helping people reach their financial goals for over a decade. For more information check out the David Rae Financial Planner website or the Fiduciary Financial Planner LA blog