Retirement Savings – Rules of Engagement

We are long overdue for a reality-check related to retirement savings.  Research shows that the average savings for a 50-year-old is $43,797.  Imagine trying to retire on that amount of money!  As I speak with people, most know that they are under-saving for retirement but many don’t know where to start, how to invest their money or how much they should be saving right now in order to get on track for their retirement planning.

I recently watched an interview with Charles Schwab’s daughter who is head of the Charles Schwab Foundation.  She discussed two key metrics for getting on track for your retirement savings:

  • The Minus 10 Rule – Assuming you have not already created a substantial savings program, a good rule of thumb for saving as a percentage of your total income is to subtract ten from your age group.  For example, if you are in your twenties, you need to be saving 10% of your total income.  Someone in their thirties needs to save 20% of income; someone in their forties needs to save 30% of income; and someone in their fifties needs to save 40% of their income. 
  • The 25 Times Rule – For a given level of annual income you’ll need to draw from your savings, multiply that amount by twenty-five to determine how much capital is required to provide that income for life.  For example, let’s assume that in addition to your Social Security and company pension plan, you determine that you’ll need to draw $40,000 per year from your savings.  How big does your savings account need to be?  $40,000 X 25 = $1,000,000.  This $1 million would allow you to withdraw approximately $40,000 per year inflation adjusted for life…meaning that each year you could draw out a little more money to help cover rising costs.

Clearly, saving thirty to forty percent of your income is no easy task…or you’d already be doing it!  But it’s important to understand that this level of savings IS possible.  For example, if you run the calculation on your own situation and come up with your ‘net adjusted income’, I could easily show you thousands of families of the same size as yours living on your new and lower income.  You’ll have to make tough financial decisions that may include downsizing to a less expensive home, buying cheaper cars, reducing or eliminating cable TV (there’s a whole movement towards ‘streaming’ TV) or any other number of ‘sacrifices’ to so that you can divert spending to savings.

If you are off track, take a moment to gaze into your future and envision just what retirement will be like with a lot less income than you’re making now.  Then, follow my number one rule of engagement: “Just Do Something!”  If the goal is big or you’re way off track, then just do something BIG!  But do something that moves you closer to your goal and keep adding ‘something’s’ until you are on track.

As always, I recommend that you meet with your professional advisor to help you set up a detailed plan of action.  If you need an advisor, you can find a Certified Financial Planner near you by visiting