How Much Do I Need To Save For Retirement?

How much do I need to save for retirement?

Fact of the matter is, it depends on several factors, and there is no one size fits all answer. But today we are going to review important factors when calculating how much you need to save for your retirement.

Retirement Age

The first step will be figuring out when you will retire. Keep in mind that the reality is that many people retire earlier than they expect. The reason for this is because unexpected issues such as new disabilities, work place changes or health problems may get in your way of working as long as you like. Thus, it’s best to keep that in mind when calculating how much you need to save.  And remember, the earlier you retire, the more money you will need to save.

Life Expectancy

We know you can’t know for sure how long you will live. However, you can check your family history and see how long your relatives lived and what diseases are common among your blood relatives. On the other hand, consider that with medical advances many more people are living past their seventies, eighties and even nineties.

Future Health Care Needs

Another important factor to keep in mind is the cost of health care. Costs for healthcare have been on the rise faster than general inflation and less employers are offering benefits to retirees. Consider Long Term Care Insurance.

Lifestyle

Take a few moments to imagine the retirement lifestyle you want. Was it your dream to travel in your later years? Do you plan on working part time? What are some hobbies you’d like to pursue? Would you rather live a simpler life and donate large amounts of money every now and then? Are you going to remain living in the same place you are now?

Consider the expenses needed to live the life you want, when adding up expenses for retirement.

Inflation

If your savings do not keep up with the rate of inflation, the value of your savings might not fully cover your retirement costs. This is because with inflation the purchasing power of your savings will gradually go down as the years go on. If your retirement savings are based on an investment vehicle, make sure that the interest rate is greater than the inflation rate.

Social Security

The reality is, Social Security is in a bit of a strain—more baby boomers rely on it and there are fewer people available to work to pay for their benefits. Additionally, Social Security pays about 40% of the total income of Americans aged 65 and over, which leaves around 60% to be paid in other ways.

The Grand Total

After considering all these factors you should have a much better idea of how much you should have to save for retirement.

For more information about how much you should save for retirement, click here. For a cost of retirement calculator click here. Please note that the calculator alone cannot factor in everything in your personal situation. It is only meant to illustrate a rough estimate.

If you are still unsure of the dollar amount you should have saved for retirement, feel free to call us at Federal National Funding at 201-342-3300 and set up an appointment or teleconference with our financial advisors. 

Effects of Inflation

If you have long term savings goals such as saving for your children’s college education, or retirement, you’ll want to read today’s blog on the effects of inflation.

To put it simply, inflation is the increase of the price of products over time. The rate of inflation fluctuates over time, sometimes it can run high, other times, it’s so low we don’t notice. But all these fluctuations are generally short term, what we need to focus on is the long term.

Over the years, inflation can chew away at the purchasing power of your income and wealth. This means that even as you save and invest, your wealth buys less and less as time goes on. Those who put off investing and saving will feel this impact even more.

While one cannot deny the effects of inflation, there are ways to fight them. For starters, you should own at least some investments whose potential return is greater than the inflation rate. For example, if a portfolio earns 3% when inflation is at 4% the investment will lose purchasing power over time. While past performance isn’t an indicator of future results, stocks have provided higher long term returns than cash alternatives or bonds. Still, one has to be aware that even with that potential, there is greater risk and potential for loss. Because of this volatility stocks may not be the best option for the money you count on being available in the short term. You will also have to think about whether you have the financial and emotional capacity to ride out these ups and downs as you pursue higher returns.

Diversifying your portfolio — spending your assets across a variety of investments that may respond differently to market conditions — is one way to help manage inflation risk. However, diversification does not guarantee a profit or protect against a loss; it is a method used to help manage investment risk.

Remember, all investing involves risk, including the potential loss of principal. There is no guarantee that any investment will be worth what you paid for when you sell.

For more information about the effects of inflation, or for more strategies to fight against it click here, or call Federal National Funding today at 201-342-3300. One of our associates will be happy to speak to you. 

Retirement Planning

 How much do I need to save for retirement?

That depends on several factors such as: retirement age, life expectancy, future healthcare needs, lifestyle, social security and inflation. 

For instance, the earlier you retire, the more money you will need. And although we all want to believe that we will retire and 65, that might not be your case. One reason you may retire earlier than planned is because you might develop a disability which may prevent you from working.

There is no one size fits all answer, everything is dependent on the factors of your life. However, once all factors are considered, we recommend you visit an experienced financial adviser to assist you further.

Though it is not intended to replace seeing a financial adviser, we do have a retirement cost calculator on our website here.

Finally, for more factors that can help determine how much you need to save, read our article here.

What are some living benefits to annuities?

In many cases and for an added cost, you can add guarantees regardless of the account value.

For example, adding a guaranteed minimum withdrawal benefit to a variable annuity contract could allow the contract owner to withdraw a fixed percentage (about 5% to 7%) of the premiums paid until 100% of the premiums paid had been withdrawn. This will still be possible even if the underlying investments were to lose money.

Another benefit available is the guaranteed minimum income benefit. When the contract owner is ready to collect retirement income payments, they would be based on a minimum payout. In the event of poor investments minimum payout would still be provided by the company.

Thirdly, a guaranteed minimum accumulation benefit can help ensure that the contract value will not fall below a certain minimum after a specified term. This is usually equal to the premiums made.

If you have questions about annuities or their living benefits, take a look on our articles here and here.

What is an IRA rollover?

If you leave a job, or you retire, you might want to transfer the money you’ve invested in one or more employer sponsored retirement to an individual retirement account (or an IRA). An IRA rollover is an effective way to keep your money accumulating tax deferred.

When using an IRA rollover, you transfer your retirement savings to an account at a private institution of your choice, with the bonus of choosing how to invest the funds. To protect the tax deferred status of your retirement savings, the funds must be deposited within 60 days of withdrawal from an employer’s plan. To avoid potential penalties and a 20% federal income tax withholding from your former employer, you should arrange for a direct, institution to institution transfer.

You are able to roll over assets from an employer-sponsored plan to a traditional IRA or a Roth IRA. Because there are no longer any income limits on Roth IRA conversions, everyone is eligible for a Roth IRA conversion; however, eligibility to contribute to a Roth IRA phases out at higher modified gross income levels. Keep in mind that ordinary income taxes are owed (in the year of the conversion) on all tax-deferred assets converted to a Roth IRA.

An IRA can be fitted to your needs, goals and can incorporate various investment vehicles as opposed to the limited options of many employer-sponsored retirement plans. Additionally, tax deferred retirement savings can later be consolidated.

Over time, IRA rollovers may make it easier to manage your retirement savings by consolidating your holdings in one place. This can help cut down on paperwork and give you greater control over the management of your retirement assets.

Lean more about IRA rollovers on our website here.

To learn more about estate planning or to find out about what options best suit you, please call our office at Federal National Funding, at 201-342-3300. One of our associates will be happy to speak to you and will schedule a free consultation.