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The new math to save for retirement can boil down to this, absurdly simple rule




"In the end, I will stop working." Most of us believe it and know it will happen, but millions of us worry about saving enough to live on when we do. We want to know: How much of the revenue should I put aside? What is the magic number? 3%? 5%? 10%? More?

What Your Financial Advisor Will Not Tell You:

Unfortunately, the retirement industry has spent decades largely avoiding the magic number. "There is no magic number for everyone," someone says. "It's complicated," others say. 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 it will be enough when the time comes.

Why should no one give us a magic number? They will not be legally responsible when the figure turns out to be too low, as for some of us ̵[ads1]1; especially those who have low wages or whose investments are poor or who live long and need nursing homes for many years – that is. The legal jitters are understandable, but they leave us in the dark about how much to save.

Don't give up hope. There is research that can help – from institutions that do not have a conflict of interest because they do not invest or give advice. My favorite is the Research Institute for Employee Benefits in Washington, D.C. EBRI, as it is called, collected anonymous information about tens of millions of people and how they actually save. It won't tell people what to do, but from research it'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%, you save at least 5%. If your employer doesn't do anything, put at least 10% of each paycheck out on their own.

Of course, there will be times when you are between jobs or you need your money for emergency pensions before retirement. In these cases, you can put your money into a Roth Individual Pension Account (IRA) account. That way you can take your contributions without penalty. (There are also Roth 401 (k) accounts, even though they have more complicated withdrawal rules.) Don't let the fact that you might need money one day, keep you from saving for retirement now.

It is okay to consult a financial advisor and get more customized recommendations, but if you can't or don't want to – or while waiting to "get to it" – set aside enough that you along with your The employer matches you except at least 10%.

Read: Where is the best place for me to retire?

America & # 39; s No. 1 fear: golden years minus the gold

People live longer. It's both good news and bad: We hear about baby boomers moving into the posh "active adult" community, but we also hear about disabled and relieved elderly people who require years of health care and child support. Anyway, longer lives seem more expensive.

And our ability to lay the foundation for retirement can feel squeezed from all directions. Life can be expensive even in our profit year, with college training, housing and medical costs in the stratosphere. Student loans and credit card debt enter. Social security, we are told, is in danger. Lifetime pension is for the most part a thing in the mythical past. All that most of us feel we can trust is a pension account that is in the mercy of the market, and we suspect there is not enough in it. Of course, many do not even have.

A deposit rate of 10% starting in the mid-20s reduces the risk of running out of money at retirement to about 30%

Experts often tell us how complicated this is to find out – and why we should hire them to do it for us. And it is easy to make it complicated: We can try to decide – now, decades before we are ready to think about pensions – what our future earnings will be and how long we will work, which lifestyle we prefer in retirement, how much Healthcare professionals will cost decades down the road, how long we will live after retirement (with margin of error, of course), how our money will be invested and what our investment returns will be (with, again, a margin of error). Not complicated enough? Add if we need funds to support children or parents or other family members.

The result is confusion. Some get financial advice. Others turn to online pension calculators. Unfortunately, many do nothing and fall back on a promise of resignation: "I'll just keep working." (Spoiler: Almost no one says that they will work until they die, stops doing so.) For still others, it means saving too little.

Modeling for millennials

How can the EBRI model help? It estimates the risk of running out of money after retirement by taking into account many more factors than the regular net calculator: contributions, market changes, social security schemes and wage growth, as well as a number of health outcomes and long-term prospects. It can then estimate the risk that, for special savings and income levels, a person's pension expenses will overwhelm their savings plus social security benefits.


For this article, EBRI provided forecasts for today's 25-year-olds with multiple revenue levels; We will interpolate the results to reflect the median earnings of today's 25-year-olds, who are $ 30,000. (The projections assume that people will earn more as they grow older.)

We then used the EBRI estimate for three thousand years. Their names have changed, but they are all in the mid 20's. We assume they are average earners:

  • Phillip, who works at startup, contributes 3% of salary to a retirement account. His employer does not contribute anything.
  • Ida, an office worker, contributes 3%, which her employer matches, for a total of 6%.
  • John, who works for a financial firm, contributes 8%. The employer contributes 4%, for a total of 12%.

Do they contribute enough, too much or too little? Thus, based on the EBRI model, we can end our millenniums and their various savings practices by retirement:

  • If Phillip, from a current $ 30,000 salary, still contributes only 3%, he has a 56% chance of running through both his pension savings and social security during his lifetime. (If he earned $ 40,000 now, the odds are increasing, but his chance of spending money still exceeds 40%.) Obviously, 3% is not enough.
  • Ida, as a woman, is likely to live longer, so her 6% total contribution must last longer, and the probability that neither that nor social security will be enough is 47%. Sounds like 6% are too low.
  • John, who contributes 12% of his salary, has less than a chance in four (23%) of money.

Overall, the EBRI simulation model suggests that in the income range for most millennia, a deposit rate of 10% from an employee in the mid-20s reduces the risk of running out of money when retiring to approx. 30%, less than a chance in wood. Contributing more than 10% whenever you want will give you a better cushion.

Of course everyone's situation and will be different, so 10% is a guide, not a guarantee. (Furthermore, if you start later in life, 10% will not be close enough.)


Digital Piggy Bank

Today, you probably think, "This is easier said than done." And you're not true. Retirement storage is like dieting because we are better at making resolutions and excuses than making progress.

But technology also makes savings easier as well. More and more employer plans will automatically register. If your employer does not have a plan, you can set up a Roth IRA with a bank or investment company and get a portion of each payroll deposit automatically. Some states, including Oregon, Illinois, California and Maryland (whose program I chair), set up IRA programs for small businesses that do not offer retirement plans.

The good news is that pension savings in a way are easier than dieting: if you get off the wagon, you can start again and feel better right away.

Yes, life is complicated. Pension plans do not always show as planned. But if we worry about everything else, we keep each other at the 10% rule as much as possible, there would be much less retirement security and much more gold in the golden years.

Read more of Best New Ideas in Retirement Living

• How to see the future of the pension society

• Long-term care insurance is a dying industry. Here are new ways to deal with the high cost of aging

• How robots and your smart fridge can help you stay out of nursing homes

• You are probably not ready to retire – psychologically

• Retirement is an emotionally and economically charged lifestyle – ignore it at your peril



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