Retirement Savings Worksheet

According to the American Savings Education Council (ASEC), you may need 70%-90% of your current annual income in order to maintain your quality of life in retirement. The questions below, based on the ASEC's calculations, will help you determine the total amount you will need for retirement and calculate how much you will need to save each year until then.

Consider the hypothetical Ellen Porter, who earns $50,000/year at age 50. She estimates that she will need 70% of that ($35,000/year) in retirement to maintain her standard of living. Ellen has no traditional pension, but expects to earn $5,000 annually as a part-time teacher; she also estimates that she will receive $14,500 annually from Social Security.

1. Required Income. How much money will you need to maintain your current lifestyle in retirement? Enter 70% of your current annual income as a basic minimum.

2. Social Security. Enter the annual amount you expect to receive from Social Security. For a rough estimate, enter $8,000 if you earn less than $25,000; $12,000 if you earn between $25,000 and $40,000; or $14,500 if you earn $40,000 or more. If you are married and earn less than your spouse, enter the greater of either your own benefit or 50% of your spouse's benefit. For a more accurate estimate, you can obtain a statement from the Social Security Administration at their website, www.ssa.gov, or by calling 800-772-1213.

3. Traditional Employer Pension. If you will receive a traditional pension, enter the amount you expect to receive in today's dollars.

4. Earned Income. If you expect to work part-time during your retirement, enter your estimated annual income from that job.

5. Retirement Shortfall. Subtract lines 2, 3, and 4 from line 1. The result is the amount of additional money you'll need from savings each year during your retirement.

Now it's time to figure out how much you will need to save. The following calculations assume a 3% constant real rate of return after inflation, a life expectancy of age 87, and Social Security benefits beginning at age 65; they do not represent the performance of any particular savings vehicle. (Bear in mind: the age when one becomes eligible for full Social Security benefits is gradually increasing to 67 for individuals born in 1960 and later.)

In our example, Ellen Porter plans on retiring in 15 years at age 65 and has managed to save $45,000. Based on her income requirements and resources, she will need to save a total of $254,200 by retirement, or $9,474.40 per year.

6. To estimate how much you need to save, multiply line 5 (the amount of your retirement shortfall) by the appropriate factor for your desired retirement age:

Anticipated retirement age:

55

Multiply by:

21.0

 

60

 

18.9

 

65

 

16.4

 

70

 

13.6

7. Enter the current total of your savings, including funds in retirement plans such as a 401(k) or Individual Retirement Account (IRA).

8. Multiply line 7 by the appropriate factor for your chosen retirement age:

Retiring in:

10 years

Multiply by:

1.3

 

15 years

 

1.6

 

20 years

 

1.8

 

25 years

 

2.1

 

30 years

 

2.4

 

35 years

 

2.8

 

40 years

 

3.3

(Source: ASEC, 2003)

This worksheet produces a very rough estimate of the savings you will need for a financially secure retirement, intended as a starting point for your financial plans. Your retirement plan is a very important life choice: for more accurate, personally tailored advice, consult a financial professional.

Your Figures

Ellen’s Figures

1. $_________

$ 35,000

2. $_________

$ 14,500

3. $_________

$ 0

4. $_________

$ 5,000

5. $_________

$ 15,500

6. $_________

$ 254,200

7. $_________

$ 45,000

8. $_________

$ 72,000

9. $_________

$ 182,200

10. $_________

$9,474.40

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