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Answer:
Dear Ms. Greenwood,
This
is a question that concerns just about everyone, except
perhaps Warren Buffet and Bill Gates. And maybe Leonardo
DiCaprio.
The
general wisdom is that Americans don't save enough.
And, in fact the U.S. savings rate is at an all-time
low -- more than half of those currently employed
have less than $25,000 in savings and investments,
not including their home. (That's according to the
Employee Benefit Research Institute, www.ebri.org.)
I
don't think you should completely forgo a comfortable
pre-retirement life in order to save. But as you approach
retirement, over-the-top, not-needed luxuries are
best relegated to the back shelf unless you are enormously
rich.
Retirement
Calculators
To
answer your question, begin with a retirement calculator.
A number of websites have the standard one; however,
I like those at www.choosetosave.org.
They are more realistic, not so general as to be almost
meaningless and take into consideration the many variables
and unknowns that we all face.
FYI,
the Choose To Save site was developed by the Employee
Benefit Research Institute and the American Savings
Education Council.
Among
the topics covered by the Choose To Save calculators
are:
- How
will retirement affect my expenses?
- Am
I saving enough? What can I change?
-
How advantageous is increasing my savings?
-
What if I underestimate my expenses?
-
What happens if tax laws change?
-
How much of an effect can inflation have?
-
Which savings should be used first?
-
How much will Social Security provide?
-
What if Social Security no longer exists?
After
spending an hour or so running the numbers here, you
will have a ballpark figure regarding what you should
be saving, starting today and going into the future.
If the dollar amount seems too onerous, keep in mind
these three factors:
Longevity.
We are definitely living longer. The average age for
Americans is now 77.6 years, with women living slightly
longer than men. So, if you stop working at 60 or
65, you will certainly need a retirement nest egg.
Healthcare.
Not all medical expenses of retirees are covered by
Medicare. And, the stability of the Medicare system
is a constant concern.
Family.
A growing number Americans are involved in providing
financial aid to their own older parents and/or to
adult children who have come back home to live.
Two
Immediate Steps
(1)
You mentioned that you and your husband own your
house...if you have a mortgage, make it a top priority
to pay off the loan prior to retirement. You don't
want large monthly payments looming over your head
when you no longer have a regular paycheck.
(2)
You can find out approximately how much Social
Security you will receive at: www.socialsecurity.gov.
Click on "Benefit Calculators."
There's
also a helpful section called "Near Retirement" which
has information about the difference between retirement
age and stop work age, delayed retirement benefits,
working after official retirement, etc.
There
is an identifiable advantage to putting off receiving
Social Security. The earliest age at which you can
take benefits (unless you're disabled) is 62...but
you will not get full benefits. Full benefits come
to those who have reached the official retirement
age.
Keep
in mind that benefits are based on your average earnings
during your lifetime (that is, during the years in
which you have had a Social Security card). Many people
think benefits are based on the last five years of
earnings. That is not correct. The Social Security
Administration averages your 35 highest years of earnings.
However, years in which you had low earnings (or no
earnings at all) will be entered into the calculation
if necessary to bring the total number of years of
earnings up to 35.
Good
luck!
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