The amount of savings needed for a comfortable retirement depends on factors such as your current age, planned retirement age, benefits expected from Social Security and/or a pension, life expectancy assumptions, and the average rate of return earned on retirement savings accounts. The more accurate the numbers for these factors, the more accurate an estimated savings calculation will be.
Some people hire financial planners to help them calculate how much they'll need to save for retirement. Many planners use Monte Carlo analysis software that determines probabilities for how long a sum of money will last. (For more information on Monte Carlo analysis, see FAQ 27727 at http://www.extension.org/faq/27727.) As an employee benefit, some employers subsidize the cost of employee sessions with a financial planner. At other workplaces, plan providers may counsel employees for free or at a minimal cost.
Another resource for projecting retirement needs is the American Savings Education Council's Ballpark estimate calculator available at www.extension.org/pages/Ballpark_E%24timate . Users can download a paper copy of the Ballpark Estimate or perform their calculations online. Dozens of other retirement financial calculators can be located by typing the words "retirement calculator" into an Internet search engine. Be sure to pay attention to the assumptions that are used for each analysis, however, because they will greatly affect the results.
Finally, a general planning guideline is that, to provide $1,000 of monthly income in retirement, investors need to set aside approximately $300,000. This translates into $600,000 and $900,000 for monthly withdrawals of $2,000 and $3,000, respectively. This guideline assumes a 4% annual withdrawal rate ($300,000 x 0.04 = $12,000, or $1,000 per month) throughout retirement adjusted annually for inflation.
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