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Retirement savings how-to

Top tips to plan for your future when you’re under 55, from Keith Fevurly, senior lecturer in finance.

By Keith Fevurly

August 1, 2017

A woman saving money in a cookie jar. Have you calculated your retirement-income needs? If so, you are among a minority of people who have done so. If not, there are any number of online retirement calculators that may be used to do this computation.

Here are some additional questions to consider:

  1. How much retirement income do I need? This amount varies according to who is performing the estimate, but most experts agree that most savers should estimate a post-retirement income of about 75 percent to 80 percent of their pre-retirement income. Interestingly, for the average saver, Social Security income provides only about 28 percent of pre-retirement income.
  2. How much do I need in the form of asset savings? Again, this amount varies with respect to who is doing the estimate. However, a 45-year-old should have saved about three to four times his or her annual gross pay. A 55-year-old should have savings equal to eight to 10 times his or her annual gross pay.
  3. Are you saving for retirement with every paycheck, hopefully using direct deposit? A primary rule of thumb of personal finance is “pay yourself first” by depositing at least 10 percent of your gross pay as early as possible in your working years. Then, increase your savings to at least 15 percent of your gross pay the closer you are to your planned retirement date.
  4. Should I save in a taxable or a tax-deferred (retirement plan) savings account? First, save the maximum annual amount permitted in a tax-deferred account (for example, current law permits an $18,000 annual contribution to a 401(k) retirement plan for people under 50 with an additional $6,000 annual “catch-up” contribution for those 50 or over). After you have maxed out contributions to any employer-sponsored retirement plans and personal tax-deferred savings plans, such as a traditional IRA, then save via a taxable account. The advantage of tax-deferred compounding of returns is almost impossible to beat.

Look for an additional column on savings tips for people 55 and over in a future Early Bird edition.

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