NCPA - National Center for Policy Analysis

How to Not Outlive Your Money

September 4, 2013

Without a plan for retirement, many people say they just plan to "wing it." Surveys show many workers feel overwhelmed by day-to-day financial pressures, worried about paying monthly expenses and job security. While they may participate in their company's 401(k) plan or another workplace retirement plan, many workers don't know what to invest in or how much to save. As a result, they're not saving enough, says CNBC.

  • A new analysis released by Fidelity found the average 401(k) balance was $80,600 at the end of June, up nearly 11 percent from the same quarter a year ago.
  • For steady savers who were continuously employed in a workplace plan for the past decade, the average balance rose to $211,800, nearly 19 percent higher than a year ago.
  • But for many, that's still not enough money to ensure a secure retirement. Not when, according to Fidelity, the average 65-year-old couple retiring today will spend about $220,000 on health care costs alone.

Figuring out how much money you may need in retirement income is an important factor in determining how much you need to save now. Assume you want to retire at age 67 and may live until your 93rd birthday. Fidelity took a look at how much 401(k) investors at various ages would need to save for every $1,000 they'll need to generate in retirement income to make their money last, assuming a 5.5 percent annual return and not taking taxes into account. Here's what the analysis showed:

  • A 25 year old just starting to save would only need put away about $160 each month to generate $1,000 in monthly retirement income.
  • Start saving at age 35 and you'll need to contribute almost $270 a month to generate the same income.
  • For every $1,000 in monthly income, a 45 year old just beginning to save for retirement would have to put away nearly $500 every month.
  • A 55 year old just starting to build a nest egg would have to make monthly contributions of $1,154 for every $1,000 in monthly retirement income -- that's double the amount of a 45 year old and more than seven times the sum that a 25 year old would need to stash away.

Source: Sharon Epperson, "How to Not Outlive Your Money: Don't Wing It On Your 401(k)," CNBC, August 27, 2013.


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