Have you saved enough for retirement?
Ever wondered what everyone else has set aside for retirement? Here's a look at the value of savings and investments (not including the value of their primary residence) of those age 50 and older who responded to our survey.
- 16% have less than $100,000
- 17% have $100,000 to less than $250,000
- 22% have $250,000 to less than $500,000
- 14% have $500,000 to less than $1 million
- 8% have $1 million or more
Other research shows retirement plan participants ages 50-64 have an average account balance of about $62,000. Those ages 65 and older have an average of about $75,000.
How do your savings stack up? Have you saved enough for retirement?
The majority (62 percent) of those surveyed think they'll need 75 percent — or even less — of their pre-retirement income during retirement. Many financial experts, however, recommend an 85 percent replacement ratio — meaning that you have enough income during retirement (from savings, Social Security and any other sources) to replace 85 percent of your pre-retirement income. You may need more or less to maintain your standard of living in retirement.
People who've saved, for instance, $100,000 for retirement by age 67 may feel like they're in pretty good shape financially. After all, $100,000 is a lot of money.
But keep in mind that many financial professionals recommend you withdraw no more than 4 to 5 percent each year. For someone with $100,000 saved, that's just $5,000 in retirement "income" each year. Social Security will help, but for a worker earning $40,000 a year, for example, Social Security provides only about 40 percent of pre-retirement income.
So how do you get to an 85 percent replacement ratio during retirement? You may need to save at least 10 percent of your pay plus employer contributions over your entire working career to have enough income in retirement. This assumes you may need about 85 percent of your pre-retirement income to maintain your current lifestyle after you retire. Each individual's situation is unique, though, so your savings and post-retirement needs may differ. If you haven't saved at this rate, you still have time to see where you stand, consider your options and accumulate additional savings.
If you need to boost savings, these steps may help.
- Consider saving as much as you can now in your employer's retirement plan, including taking advantage of catch-up contributions (up to an additional $5,500 for the 2013 tax year) if the plan allows it. You can also save in individual retirement accounts (IRAs).
- Work with a financial professional. He or she can help you determine if you need to save more for retirement — and if so, how much.
Ready to take action?
To see if your savings are on track, use this retirement tool.
- Pre-Retiree Participant Survey conducted by the Principal Financial Group, March 2012. 22% of respondents either didn't want to provide or didn't know their asset level.
- The Principal Financial Group®, The Total View 2011 Retirement Plan Trends Report.
- Assuming pre-retirement gross annual income of $40,000. Aon Consulting 2008 Replacement Ratio Study.
- Based on analysis conducted by the Principal Financial Group, August 2013. The estimate assumes a 40-year span of accumulating savings and the following facts: retirement at age 65; a combined individual and plan sponsor contribution of 12 percent; Social Security providing 40 percent replacement of income; 7 percent annual rate of return; 2.5 percent annual inflation; and 3.5 percent annual wage growth over 40 years in the workforce. This estimate is based on a goal of replacing about 85 percent of salary. The assumed rate of return for the analysis is hypothetical and does not guarantee any future returns nor represent the return of any particular investment. Contributions do not take into account the impact of taxes on pre-tax distributions. Individual results will vary. Participants should regularly review their savings progress and post-retirement needs.
- Assuming pre-retirement annual gross income of $40,000. Aon Consulting's 2008 Replacement Ratio StudyTM http://www.aon.com/about-aon/intellectual-capital/attachments/human-capital-consulting/RRStudy070308.pdf
- Online contribution changes are not allowed for all retirement plans. If you are not able to update your contribution at principal.com, see your human resources contact.
Insurance products from the Principal Financial Group are issued by Principal National Life Insurance Company (except in New York) and Principal Life Insurance Company. Plan administrative services are provided by Principal Life. Securities are offered through Princor Financial Services Corporation, 1-800-247-1737, Member SIPC. Princor®, Principal National and Principal Life are members of the Principal Financial Group (The Principal®), Des Moines, IA 50392.