The Road to Retirement
When you spend most of your life working, retirement can seem so for away. But, when asked how you would spend your retirement, you probably already have a list of things to do. Travel the world. Spend more time with your family. Maybe even lounge the weekends away. That’s the easy part. What may be complicated is figuring out exactly how much you need to save in order to get there.
The Perfect Calculation
To calculate the exact amount, you need to know your level of expenses during retirement. your future tax rates, the future returns on your assets and ultimately, how long you are going to live. With all these uncertainties, the thought of doing the calculation can be daunting. The net result is often that individuals do not perform the calculation and they do not take any action to prepare for retirement.
100,000 Reasons to Save
Even without an exact calculation, it is probably safe to assume that you want to accumulate more funds now so you can enjoy the type of retirement lifestyle you want. Here is one simple idea that may give you some motivation to do something you know you should be doing – saving more. The numbers are not too complicated.
Let’s assume you want to have an additional $100,000 accumulated when you retire at age 65. The question becomes “how much do you have to save between now and age 65 to reach that goal?” The only variables are how old you are now and what will you earn on the funds between now and age 65.
Monthly Savings Needed to Accumulate an Additional $100,000 for Retirement
|Current age (years to retirement)||Earning 4%||Earning 6%||Earning 8%||Earning 10%|
|25 (40 years)||$85||$50||$29||$16|
|30 (35 years)||$109||$70||$44||$26|
|35 (30 years)||$144||$100||$67||$44|
|40 (25 years)||$194||$144||$105||$75|
|45 (20 years)||$273||$216||$170||$132|
|50 (15 years)||$406||$344||$289||$241|
|55 (10 years)||$679||$610||$547||$488|
|60 (5 years)||$1508||$1433||$1361||$1291|
There is probably little you can do to ensure you will earn higher rates on your funds. However, you can control when you start and how much you save.
Simple Things to Remember
Don’t Wait, Save Now
If you participate in your employer’s 401(k) plan, simply increase your monthly deferral if you can. You reduce you current taxable income by the amount of the deferral and the funds accumulate on a tax-deferred basis.
If you are already contributing the maximum to a 401(k) plan, establish and IRA or Roth IRA. Anyone with earned income can contribute to a regular IRA, but the deduction may not be available depending on your income level and other retirement plan participation. Roth IRAs have income restrictions. In either case, the funds still accumulate on a tax-deferred basis.
Establish an automatic savings plan with monthly transfers into a savings account from your paycheck or from your checking account. There are no tax benefits, but you will be accumulating funds toward your goal.
By starting an increased savings plan as early as possible, the easier it will be to reach your retirement goal.
A Bank of Hawaii Deposit IRA or Investment IRA may be a useful tool for helping you reach your retirement goals.