Work It Out

1. How much annual income will you want in retirement? (Figure at least 70% of your current annual gross income just to maintain your current standard of living; however, you may want to enter a larger number. See the tips below.)

$_______________

Tips to help you select a goal:

•   70% to 80% — You will need to pay for the basics in retirement, but you won't have to pay many medical expenses as your employer pays the Medicare Part B and D premium and provides employer-paid retiree health insurance. You're planning for a comfortable retirement without much travel. You are older and/or in your prime earning years.
  
• 80% to 90% — You will need to pay your Medicare Part B and D premiums and pay for insurance to cover medical costs above Medicare, which on average covers about 55%. You plan to take some small trips, and you know that you will need to continue saving some money.
  
• 100% to 120% — You will need to cover all Medicare and other health care costs. You are very young and/or your prime earning years are ahead of you. You would like a retirement lifestyle that is more than comfortable. You need to save for the possibility of long-term care.

2. Subtract the income you expect to receive annually from:

• Social Security — If you make under $25,000, enter $8,000; between $25,000 - $40,000, enter $12,000; over $40,000, enter $14,500 (For married couples - the lower earning spouse should enter either their own benefit based on their income or 50% of the higher earning spouse's benefit, whichever is higher.)

–$_______________

• Traditional Employer Pension — a plan that pays a set dollar amount for life, where the dollar amount depends on salary and years of service (in today's dollars)

 –$_______________

• Part-time income

–$_______________

• Other (reverse annuity mortgage payments, earnings on assets, etc.)

 –$_______________

This is how much you need to make up for each retirement year:

=$_______________

3. Multiply the sum you need to make up by the number of years you expect to be retired.

4.  This is how much savings you need to bridge the gap between your income from Social Security and other income and your annual income goal, assuming a 4 percent withdrawal rate: 

$_______________.

Sources:  Employee Benefit Research Institute; final calculation based on the 4 percent withdrawal rule.

Now you want a ballpark estimate of how much money you'll need in the bank the day you retire. For the record, we assume you'll realize a constant real rate of return of 3% after inflation and you'll begin to receive income from Social Security at age 65.
 

5. To determine the amount you'll need to save, multiply the amount you need to make up by the factor below.