Saving for Retirement

OK, seriously: how much should I be saving for retirement?

401k.jpgSaving for retirement is like driving blindfolded. You know where you want to end up - comfortably well-off, enjoying a more fulfilled and less stressful life - but you're afraid you won't get there. Who knows how much your savings will earn, how long you'll be able to keep working, how much it will take to pay retirement expenses, or how long you'll live? No wonder so many working people freeze at the wheel or putter along at a snail's pace.

Some major financial firms are trying to provide guidance for the average working person. Would these tips help you step on the accelerator?

How much current income to save for retirement
Two leading investment management firms are almost unanimous in their recommendations:
10% to 15%, according to T. Rowe Price
12% to 15%, according to the Vanguard Group

These starting points assume you qualify for Social Security. If you're getting a late start with your savings, you'll want to put aside a higher percentage of your income. (Not sure how? See "Save more tomorrow.")

How much to have accumulated by now
Financial services giant Fidelity Investments suggests these guidelines:

By this ageâ€Ĥ

you should have accumulated this much money:
 Age 35
 Equal to your annual income
 Age 45
 3 times your annual income
 Age 55
 5 times your annual income
 Age 65
 8 times your annual income

This formula may allow an average worker to replace 85% of his pre-retirement income, Fidelity says, although that will depend on your desired retirement lifestyle. High earners should put aside more, since they can't expect Social Security to replace as great a percentage of their previous income. (To see the assumptions Fidelity used, go to the site footnoted below.)

Saving 15% of your income is the best thing you can do right now to steer toward the ideal retirement you want. You may have to start with 5% or 10% and step harder on the gas in six months or a year - but the important thing is to turn the key and get rolling.

Save more tomorrow

Does the idea of saving 15% of your pay for retirement seem unattainable? Many people in circumstances like yours are managing to do it. Here are their secrets:

Make a commitment to save more tomorrow. Let's say you feel okay contributing 5% of your pay to an IRA or your company 401(k). Write on your calendar that in three months you'll add 1% more. Every three months, bump up the percentage of savings by another 1% of your pay. If it becomes hard to handle your bills, fall back to the previous level of savings and try to figure out how to make another increase work. You can do it!

Save your raises. Next time you get a raise, pretend you didn't. Add that increase in pay to your retirement plan contribution. Since you've been living on your previous paycheck so far, you may never miss the extra cash. (Putting it in your retirement plan will reduce your taxable income, too.)

Pay yourself automatically. Even though you're only putting aside money to use in the future, it's hard to avoid spending it on today's needs. If you set up automatic transfers from your paycheck into a savings account here, you're less likely to use the funds for something else.