One of the most challenging aspects of retirement planning and where we get the least amount of help is answering this question: How much is enough?
For legal reasons, planning professionals are hesitant to state an exact figure. They don’t want the liability if they’re wrong.
They sidestep the issue with statements like “It’s not one-size-fits-all,” “It’s different for everyone,” “It’s a function of the market” or something as vague as “It’s complicated.”
The bottom line in all of this is that nobody’s offering any hard numbers – not until recently.
The Employee Benefit Research Institute (EBRI) has gathered anonymous information on tens of millions of people and has finally come up with a firm number.
The EBRI says its numbers indicate that it is as simple as putting aside an average of 10% of what you earn. (That’s a combined 10% of what you contribute and what your employer contributes.)
If you don’t have a retirement plan at work, the EBRI says you still need to put away 10%.
Of course, the key to this equation, as has always been the case, is to start early and stay consistent. It isn’t so much the amount you contribute as it is the time it has to grow.
The average person earns something in the area of $1.4 million in a 40-year career. That’s based on an average household income of $51,000 per year.
Most of our readers are well above that annual and total income number, but if we use the $51,000-per-year average, over 40 years at 7% with a 10% contribution ($425 per month), we end up with almost $1.2 million.
Of course, most of the people reading this are 50 and older, but that still allows for as many as 20 years of savings. The total accumulated amount using the above average numbers for 20 years is still around $250,000. That can make any retirement better.
But many of us are empty nesters at the higher end of our earning potential, so many of us should be able to bump up our monthly contributions significantly.
Doubling the average monthly amount to $850 will yield almost $500,000. That should improve any retirement scenario.
In any event, it’s never too late to make a difference. Take a look at your spending habits and how much you’re saving and make changes today that will guarantee a more comfortable retirement life.
The EBRI’s 10% number may not be the final word on the matter, but it’s the best I’ve seen to date. It’s an improvement over having some advisor tell you “It’s complicated.”