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Saving Your Retirement

By MP Dunleavey Thursday May 13, 2010
This post is about investing, retirement

illu_afamBe calculating
How much money do you need to save for retirement? That's a good—and complicated question.

Let's keep it simple. For now, you're going to nail down a ballpark figure.

Goose egg or nest egg?
Use online calculators with caution. They tend to be crude, because they assume or leave out key details.

We recommend the CNN/Money calculator to jump-start your planning process. It shows you where you're headed at your current rate of savings; where you'd be if you made certain adjustments, and how inflation plays into your plan.

To maximize this or any online calculator, do some prep work so the details you enter are as accurate as possible:
  • Add up the balances in your 401k and IRA accounts.
  • Figure out how much Social Security you're likely to get (read a recent statement or use this government site).
  • Calculate your home equity and other saving/income sources.
If there's a fact you can't provide, make an educated guesstimate.

Bottom line
While your ultimate retirement plan will be comprised of multiple moving parts, getting a ballpark for your target nest egg is a vital first step. We hope it will inspire you to save regularly and invest wisely.

Note to Readers: We appreciated the heated debate sparked by yesterday's post on haggling. Read our thoughts here.


Poll
Please pick the statement that best reflects your views. (Sorry, you can only pick one.)

What is your retirement status?

I have a retirement account, but can't afford to contribute right now. - 15.3%
I will open/start a retirement account soon. - 7.9%
I have one, and I contribute every month. - 68.4%
NA: This whole topic is too overwhelming. - 8.4%

Total votes: 190
The voting for this poll has ended on: 07 Jun 2010 - 00:00
Comments (8)add
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Written by Mallory - Miss Malaprop, May 13, 2010
I work in state government, so we have retirement contributions taken out automatically each pay period that go into the state retirement plan. I still want to open up an additional Roth IRA though - my plan is to hopefully switch to self-employment sometime in the next year or so, so I need to figure out a better retirement option soon and get something started.
Written by MP Dunleavey, May 13, 2010
Mallory, that's great. But don't assume that the government--or any employer--is automatically taking out the right amount for YOU. The amount they withdraw is usually something basic, so employees don't freak out and say, Hey, where's all my money going?! It's important to calculate your own nest egg, know where your savings are headed, and adjust accordingly.
Written by pesky, May 13, 2010
I just did the CNN retirement calculator and was relieved to find that I have a 99.4% chance of achieving my retirement aims. I got into the workforce pretty late, and i had a low salary for a while. I still don't make a lot but my needs are modest, so I've been socking way into my 401k. I did decrease the amount i was contributing when the stock market was melting down, but I never completely stopped contributing. But even though the calculator made me feel a bit better, all it takes is a layoff for everything to change. And since most of us in the US have zero job/career security, I still do not feel real confident about my future.
Written by Sue , May 13, 2010
I will be 58 in July. Almost retired this year. 27.5 yrs at this job has been miserable. Instead I did job sharing and now only work part time for $12k/yr. Have saved $650K and only used CD's, even on my SEP. I live far below my means and have no debt. Paid my house off in 5 years at 39. Did without what most would consider necessary. I could retire now, but will earn part time income till SS kicks in at 62. This way, I will only have to use part of the earnings on my savings and not touch the principle. What worked for me was to try to save one year of retirement for every year worked. It can be done and no, you do not need millions. Thanks and good luck to all.
Written by Jaime, May 13, 2010
My only retirement savings right now is my 401k at work; I'm 32 years old. I contribute 3%, but they stopped matching last year as a cost savings measure. It was extremely disappointing since I had elevated my rate to 5%, so that I was getting 8% saved altogether. Once they stopped matching, I dropped my contributions back to 3% (I was also saving the down payment on my house). I've been looking into starting an IRA as well, but haven't gotten beyong the thinking stage on it yet.
Written by Kenia, May 13, 2010
I've got a question: What are the advantages (or disadvantages) of putting all your retirement savings into a company-sponsered 401K plan, versus putting some in the 401K and some in an IRA. Just to be clear on my 401K tax situation: I will be switching my 401K over to a Roth 401k soon. My company matches up to 8% of my income, and I'm currently putting in 10% (with a 1%/year automatic increase every year). I am wondering if my Roth 401K will suffice on its own, or if I should only put in what I get matched for, and put the other 2% into a Roth IRA (and increase the Roth IRA contribution by 1% each year, and always maintain the Roth 401K at a flat 8%). I will definitely be asking my financial advisor about this before making a final decision, but I'm interested in hearing your perspective, MP. (And I'm betting there are other readers that may also want to know more about this too!)
Written by Petunia, May 14, 2010
Kenia, the reason that is given over and over for choosing an IRA over a 401k is that the vast majority of 401ks have high administrative fees. The fees are not transparent, they are structured in such a way that you don't see them. They are deducted from your returns before they hit your account. High fees are your enemy. In an IRA, you are free to choose a quality low-cost provider.

Also, some employer plans have few quality investment choices. If you are stuck with such a plan, it makes more sense to open your own IRA and fund that (after you get your match of course).


Written by Kenia, May 14, 2010
@Petunia - Thanks! I never even thought to consider administrative fee differences. I'll be bringing that into my conversation with my financial adviser. :)
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