15 ways to ruin your financial future: Not saving enough for retirement
Filed under: Retire, Investing
We are doing a terrible job saving for retirement. The median 401(k) plan balance is a paltry $18, 986!
While there is raging debate over how much you need to save in order to retire with dignity, everyone would agree that most Americans are falling far short of achieving this goal.
So how much do you need to save?
Ideally, you need to figure out how much your expenses will be when you retire for the rest of your life (and, if you are married, the life of your spouse or partner). This is not easy to do, given the ravages of inflation and a tax code that is subject to change.
Most financial planners simply assume that you will need a percentage of your pre-retirement salary.
Don't miss the rest of our series on 15 Ways to Ruin Your Financial Future!
One comprehensive study by Baclays Global Investors determined that 75% of pre-retirement income is a benchmark for a successful retirement. The study also found that, given the typical 401(k) plan savings rate, most Americans could count on replacing only 41% of their pre-retirement income.
In order to achieve the 75% number, an employee would have to save 15% of her income (including the employer match) over a forty year period, with the right asset allocation, and achieve market returns.
However, most investors achieve only one-third of market returns because their portfolios are underrepresented in stocks and many 401(k) plans do not provide an adequate selection of low cost index funds or target retirement funds.
For example, an employee in her 20s should be primarily invested in stocks because she has a long time horizon and does not need to be concerned about short term market volatility. Yet, 47% of this age group have no stocks in their 401(k) plans.
Investment guru William Bernstein cautions that, when boomers retire between 2010 and 2030, the government bailout will make the savings and loan resolution "look like lunch at Taco Bell."
Start early. Adhere to a plan. Invest in a globally diversified portfolio of low cost index funds in an appropriate asset allocation. You can determine your asset allocation by taking the free questionnaire here.
Don't make the mistake of not saving enough for retirement.
Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008).
Reader Comments (Page 1 of 1)
9-24-2008 @ 9:43AM
Leslie said...
Excellent series!
By the way, it's a WELL-paying job. It pays WELL.
(not good-paying)
From a journalist!
Reply
9-25-2008 @ 6:33AM
Limoman said...
Another Misconcepition..
1. If you own a Home andHave it paid for by Retirement Time?
2. You Just Downsize to a Smaller One
3. Take the extra tax Free $ from the sale and you will boost your Retirement Savings by at least $100-$200,000!
That's what we did!
Invest it in a Balanced Fund , makes ave 10% Yr and your good to go..
And Do you really think the Kids in those Bigger Homes really plan to stay in them after Retireing?
$400k house in 30 yrs be worth over $3 million
-$1 Million for a Retirement Home
= $2 million for their Retirement Savings
4% apy = $80,000 yr Income
+ $50k SS = $130,000 Yr Retirement income
Geech, can one be so dumb not to see this?
Didn't your parents show you anything, if not Do this with their Home when they retired?
And why buy a Bigger Home than you need?
1. if it grows at ave of 7% apy in Value
2. Doubles every 10 yrs
3. And is Tax Free, not Tax Deferred like a IRA or #401k
On a per $100k house in 30 yrs? = $800k!
a Few Bad Yrs won't make any difference either..
Geech!
Reply
9-29-2008 @ 2:51PM
Elle said...
We are the working class. What money we have is in our pockets. NO stocks No bonds NO 401 no nothing. My hubby makes 13.00 an hour it takes every bit just to play the bills now, have nothing left to save for retirement.. however we have no mortage, home is paid for, but taxes keep going up. So where does this new plan of the government leave us....I would say up the creek with out a paddle. I say take the 700 billion dollars and instead of buying bad debts from the bank give each and every LEGAL American $500,000 to spend and use as they see fit. THAT will boost the he** out of the economy. We would spend it on new autos cause my car is 18 years old. New clothes cause I have not bought any in 4 years. And then put the rest away for retirment which is going to happen to hubby when he is to old and sick to walk out the door at 4AM. So how many people actually have nothing for retirement? Seems the only ones who do have money for later is those who are scamming it from the working class. CEOs and politicans. IT is a sicking pitiful state of affairs this country is in. None of the stock holders or CEOs or politicans care about the average working person they care about how much they are going to make off the bail out using our tax dollars. I was wondering 700 billion for this and 50 billion a year for the war JUST HOW MUCH MONEY DOES THE GOVERNMENT HAVE IN IT'S WALLET???????? /elle
Reply