“Eventually, I’ll stop working.” Most of us think that and know it will happen, but millions of us worry whether we’re saving enough to live on once we do. We want to know: How much of my earnings should I set aside? What’s the magic number? 3%? 5%? 10%? More?
What your financial adviser won’t tell you:
Unfortunately, the retirement industry has spent decades largely avoiding the magic-number question. “There’s no magic number for everyone,” some say. “It’s complicated,” say others. And then they offer, sometimes for a fee and sometimes for “free,” to take our money and invest it for us — often without telling us whether it’ll be enough when the time comes.
Why will no one give us a magic number? They don’t want to be legally responsible when the number turns out to be too low, which, for some of us — especially those whose pay is low or whose investments are poor or who live long and need a nursing home for years — it will. The legal jitters are understandable, but they leave us in the dark about how much to save.
Don’t give up hope. There’s research that can help — from institutions that don’t have a conflict of interest because they don’t invest or give advice. My favorite is the Employee Benefits Research Institute in Washington, D.C. EBRI, as it’s called, gathered anonymous information on tens of millions of people and how they actually save. It won’t tell people what to do, but from its research there’s a pretty useful rule of thumb for young people: Count on your fingers and …
Save 10% — now
Between you and your employer, set aside at least 10% of your paycheck. If your employer contributes 3%, then your share is at least 7%. If the company kicks in 5%, then you save at least 5%. If your employer does nothing, set aside at least 10% of each paycheck on your own.
Of course, there will be times when you’re between jobs or you need your money for a pre-retirement-age emergency. In those cases, you can put your money in a Roth individual retirement account (IRA) account. That way, you can take your contributions out without penalty. (There are also Roth 401(k) accounts, though they have more complicated withdrawal rules.) Don’t let the fact that you might need money someday keep you from saving for retirement now.
It’s perfectly OK to consult a financial adviser and get more personalized recommendations, but if you can’t or don’t want to — or while you’re waiting to “get around to it” — set aside enough so that, together with your employer match, you’re putting aside at least 10%.
Read: Where’s the best place for me to retire?[1]
America’s No. 1 fear: golden years minus the gold
People are living longer. That’s both good news and bad: We hear about baby boomers...