Americans, by far and large, understand the necessity of a retirement fund – this is due in large part to the fact that we all want to kick up our heels, relax, and travel the world. However, what most of us Americans don’t understand is just how much money we need in order to do that and sustain comfortably. In fact, some estimates wager that over half of the American population hasn’t even tried to figure out how much they would need – which, to any financial planner, is madness.
Why madness? Well, it’s important to look at your retirement like it’s your own personal business. Would you go into any business venture without a long-term plan? Wouldn’t you always have a budget and know exactly what you need, exactly when you’ll need it, and what’s going to take bites and nibbles out of it?
Of course you would! You would do all of those things – and you should do the same when planning for your retirement. Check out the Suncorp superannuation calculator so you can find out how much you need to retire.
Now is the Time – If You Haven’t Already
Trust and confidence in the economy is slowly, but surely, restoring to full health – Americans are willing to take risks and spend money again – despite a disappointing 4th quarter compared to our solid 3rd for 2013. And, furthermore, Americans are actually being realistic about money and investments for once.
Taking all of this into consideration, it’s a safer time to tend to your financial future without feeling scared that the entire economy kick the bucket – something that was a very real fear in recent years. In fact, a record-breaking 46% of American adults have already made substantial New Year’s financial resolutions for 2014, according to an annual Fidelity Investments survey – a further 62% boast that they were able to stick to those resolutions in 2013 and are confident in their ability to do so again in 2014.
Lule Demmissie, Managing Director of Retirement at TD Ameritrade, states, “It’s important to know your nut; obsessing over a big number can be paralyzing. So, just think of it as a starting point – what’s important is that you make progress toward it every year.”
Find the Retirement Calculation that Works for You
There’s a plethora of different ways to obtain a comfortable retirement and the best way to take is going to depend largely on who you’re talking to – everyone has different theories, ideas, systems, etc. Many financial firms have simplified and streamlined how they calculate retirement goals by developing income and actuarial models that determine a logistical target multiple of your total annual salary.
According to Aon Hewitt, a Benefits Consultant, the average full-career American worker should have 11 multiples of their annual pay locked into retirement by the time they reach the age of 65. By that calculation, if you earn $75,000 per year, you should have $825,000 in the bank by age 65. Keep in mind that these multiples change by the year – 11 multiples isn’t the rule; Hewitt states that at age 67 you’d aim for 9.4 multiples of annual income ($705,000) and at age 62 the multiple would rise to 13.5 ($1,000,000). If you retire sooner, you’ll need money for longer.
Of course, this is just one theory and one system – there are many others tailored to a variety of situations and it largely depends on you and your situation to determine which is suitable. At the end of the day, how much you spend vs. how much you save also becomes a factor. The American that puts away 20% of their income into savings every year can have a less aggressive retirement plan – they have their eggs in multiple baskets.
In order to know what the best course of action is for you, the best thing that you can do is shop around, ask friends and co-workers about their retirement plans, and establish a relationship with a financial advisor that you can actually trust.
