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How Much Money Do You Need to Retire?

How to navigate the bumpy road to retirement

How do you navigate the bumpy road to retirement? I addressed that issue recently when I spoke with Anne Thompson of NBC Nightly News. (Truth be told, I was actually talking to a camera in an empty Washington broadcast studio. But still.)

See also: Use the AARP Retirement Calculator.

Thompson was making a news segment focusing on how much money people "should be saving," and I proposed a formula based on having certain multiples of your current salary put away as you get closer to retirement.

For example, if you're 40, you should have the equivalent of twice your current salary in the bank. By the time you're 60, you should have nine times your current pay in savings. In the chart below, you can see what you should have at other ages.

Multiple of current salary that you ideally have in savings:

  Annual Income Level ($)
Age Retirement
Savings Multiple
30,000 50,000 70,000 100,000
20 0        
30 0.4 12,000 20,000 28,000 40,000
40 2 60,000 100,000 140,000 200,000
50 4 120,000 200,000 280,000 400,000
60 9 270,000 450,000 630,000 900,000


Today's economic realities — volatile portfolio values and a tight job market — mean that each of us has specific needs requiring a customized solution.

If you're 50 years old and making $100,000 a year, there's a pretty good chance that you've got a hefty mortgage, a couple of car payments and tuition bills for one or more kids. That probably doesn't leave a lot of money to help you hit your recommended $400,000 savings milestone.

In fact, there's a chance that you haven't saved anything yet.

Does that mean it's too late? No. But if you got a late start, you'll probably have to adjust your expectations. You may need to change what you spend now and consider a more modest lifestyle than you'd envisioned after age 60.

Eighteen-hole days and cruises in retirement may have been possible if you'd started saving in your 20s and 30s. When you're just beginning at 50, you should aim for a plan that will help you achieve peace of mind — not luxury — for your later years.

To do so, you'll first need to identify your basic and necessary expenses. This will help you create a  budget that includes saving money for retirement. It will also help you figure out what your true post-retirement expenses will look like. Think about expenses you can cut, as well as places to put the money you save, like your company's 401(k) plan or a private Individual Retirement Account.

Next: Calculating your Social Security. >>

Remember to go to the AARP home page every day for tips on keeping healthy and sharp, and great deals.

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