Register For Our New Online Classes! www.rexcuadvice.com/register-for-classes

How to save for retirement

A recent Retirement Confidence Survey showed that only 55 percent of workers ages 25 to 34 have begun to save for retirement.

This year's Retirement Confidence Survey from the Employee Benefit Research Institute and Greenwald & Associates reported that 55 percent of workers ages 25 to 34 have begun to save for retirement. Of those that have started to save, the majority have saved less than $1,000 and 23 percent have saved between $1,000 and $9,999.

Matters of age aside, only 48 percent of workers and their spouses have tried to figure out how much they will actually need to live in retirement. The report also states that, generally, people who have tried to calculate how much they will need in retirement estimate higher numbers than those who haven't done any retirement spending math. This could indicate that the smart thing for workers to do is to spend some time to figure out how much they will need for a comfortable retirement. They should also determine how much they need to save during their working years.

Challenging the 80 percent rule
Based on the estimations of past studies, first-year retirees will spend 85 percent of their pre-retirement income. So, it makes sense that workers should aim to save enough to spend 85 percent of their pre-retirement salary in the years after they retire.

However, ThinkAdvisor contributor Michael Finke calls this number into question, asserting that most retirees will want to spend the same way they did before retirement.

The Motley Fool also questions this number, arguing that one size doesn't fit all retirees. Some retirees will want to travel, thus spending more money, while others might have higher medical payments due to health problems. Plus, spending won't be the same during every stage of retirement.

"Retirement spending won't be the same during every stage of retirement."

Calculating retirement spending
The best thing workers can do to prepare for retirement is calculate how much they will actually need. They should take into consideration how much they spend during their working years, how much of that they will want to maintain, whether they plan to enjoy more costly hobbies or vacations in retirement, average healthcare costs and typical day-to-day spending on food, transportation and utilities.

Workers will also want to consider where their retirement money will come from. The average Social Security benefit in January, 2015 was $1,328 per month. Pension plans and annuities may also provide retirees with income.

After workers figure out how much they expect to spend in retirement and how much they will receive from other sources, simple subtraction will tell them how much they should have saved before retirement.

Another way workers can calculate how much they should save is by determining how much they want to spend, rather than how much they think they might spend. It's generally advised to spend about 4 percent of the retirement savings each year to make it last 30 years. If workers figure out how much they want to spend each year in retirement, they can multiply that amount by 25. This will calculate how much they'll want to have saved by the time they retire.


Some retirees will want to travel while some will want to stay close to home.Thinking about what retirement will entail helps to determine how much money will be needed. Retirees who wish to travel may need more than retirees who wish to stay close to home.

Ways to save
Once workers figure out how much they want to have saved up by the time they retire, they will have to figure out how to save that money. There are several ways to do this. Two of the most popular are to open a savings account and to contribute to a 401(k) plan.

1. Invest in a 401(k) plan: Brandon Honcoop, senior vice president and portfolio manager at RBC Wealth Management, told Forbes that saving with a 401(k) early on will pay off in the long-term.

"If they put $50,000 in a 401(k) at age 25 and don't touch it, assuming a [annual] seven percent return, they'll have $800,000 or more by the time they're 65, just through the compound value of money," he told Forbes. "I really stress to millennials that they need to take the long-term approach. Every 10 years they delay starting, they have to save double."

2. A savings account: According to U.S. & World News Report, most savings accounts are insured up to $250,000, making this option the most secure for saved money. Credit unions provide great options for saving money in this way.