Retirement Savings Examples
| Current Age | 45 | 45 | 55 |
| Desired Retirement Age | 65 | 65 | 65 |
| Annual Household Income | $80,000 | $80,000 | $90,000 |
| Anticipated Income Growth Rate | 3.0% | 3.0% | 3.0% |
| Desired Income Replacement Rate | 70% | 70% | 70% |
| Current Retirement Assets | $75,000 | $4,000 | $4,000 |
| Expected Return on Investments | 6.0% | 6.0% | 6.0% |
| Expected Pension at Retirement | $33,000 | $33,000 | $33,000 |
| Social Security at Retirement | $30,000 | $30,000 | $30,000 |
| Ongoing Annual Savings Required | $5,354 | $11,544 | $18,310 |
In this example, a 45 year-old that has already saved $75,000 needs to save about $5,300 annually to meet their desired income replacement rate of 70% when retired. But a 45 year-old that has a minimal amount of retirement savings needs to save at more than double that rate, nearly $12,000 per year.
Once you've figured out exactly how much you need to save each year, then your next stop should be our retirement investing guide. That publication walks you through a series of questions aimed at helping you to decide where to start, or continue, your retirement savings. Most of us have two options when it comes to retirement savings: IRAs, and employee sponsored savings plans such as 401k plans and 403b accounts.
Employee Sponsored Retirement Savings Plans
Usually, your first recommended course of action will be to start funding a 401k plan or 403b, especially if your employer offers such a plan, and they are matching your contributions. Depending on how much you have saved, whether or not your employer offers a 401k plan, and the generosity of the plan itself, this type of account is usually your best bet; especially if you're playing catch up.
Individual Retirement Accounts
Now depending on what your employer is offering you, and how much you need to save each year, you may find yourself supplementing your employer's 401k plan with an individual retirement account.
For example, let's continue with our scenario above using a 45 year-old with minimal retirement savings. If their employer matched 50% of their first 8% in contributions to a 401k plan, then they'd be saving $9,600 via that plan. But they still have a $2,000 savings gap, and at this point their next best option might be a Roth IRA.
The point here is you really need to run through some scenarios to see what the numbers are telling you.
Retirement Planning Strategies in Your 40s
If you've been thinking about retiring, planning and saving all along, then you may find yourself on autopilot by the time you reach your 40s. Holding the course and working your original retirement plan might be all you need to do at this point, especially if your original assumptions were accurate.
If you've been ignoring retirement for some reason, or delayed facing the reality that you may one day be retired, then now is the time to act. It's halftime. It's time to regroup and prepare yourself for the second half of your career.
Plan - At this point in your career, you should have an excellent feel for when you'd like to retire, how much you need in those retirement years, and where your current career is likely to take you. For that reason, you should be able to create a very accurate retirement plan.
Do - At 40-something there is simply no time to waste. Once you've figured out what you need to do, then just do it.
Check - If you're playing catch up, then you're going to need to check your retirement plan every two years or so. Because of the relatively short time between now and when you retire, you need to pay close attention to things such as the return on your investments to make sure they agree with your planning assumptions.
Act - As you check your plan, you may need to make adjustments to things such as retirement age and your rate of savings. Since you have half your career behind you, during each of these cycles you should only be tweaking your retirement plan.
SOURCE: http://www.money-zine.com/Financial-Planning/Retirement/Retirement-Planning-in-Your-40s/
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