Determining a Target Retirement Saving Rate
A secure retirement is one of your goals, right? The worksheet in this video can help you get there.
When setting up your budget, it is important to include retirement savings. You can save through a retirement plan at work, on your own, or both. The target retirement savings rate tool will help you determine how much you need to save each year. The sooner you start saving, the longer your savings have to grow.
The worksheet will help you estimate what percentage of your current annual salary you should be saving. While it does not take into account your unique circumstances, it will help you plan for your retirement goals.
The worksheet asks for four pieces of information:
- Number of years until retirement (your planned retirement age minus your current age)
- Current annual salary
- Number of years you expect to spend in retirement
- Current savings
The worksheet assumes that you’ll need to replace about 80 percent of your pre-retirement income. Social Security retirement benefits should replace about 40 percent of an average wage earner’s income after retiring. This leaves approximately 40 percent to be replaced by retirement savings. Keep in mind, this is an estimate and you may need more or less depending on your individual circumstances.
How many years do you have left until retirement?
The more years you have until retirement, the less you will have to save each month to reach your goal. No matter your age, for every 10 years you delay starting to save for retirement, you need to save 3 times as much each month to catch up.
How long will you live in retirement?
Based on current estimates, a 65 year old man can expect to live approximately 18 years in retirement, and a 65 year old woman can expect to live about 20 years, but many people live longer. Planning to live well into your 90s can help you avoid outliving your income.
The worksheet takes into account some factors that impact your retirement savings. First, investing - because it involves risk. Second, inflation - because today’s dollars will usually buy less each year as the cost of living rises. Your target savings rate includes any contributions your employer makes to a retirement savings plan for you, such as an employer matching contribution. If, for example, you are in a 401(k) plan in which you contribute 4 percent of your salary and your employer also contributes 4 percent, your saving rate would be 8 percent of your salary.
By using the worksheet, you’ve figured out your target savings rate. It gives you a rough idea –a savings goal. Some may face higher expenses in retirement because of personal circumstances. For example, if you or your spouse have a chronic medical condition, you may want to save more. Some may have other sources of income in retirement such as a traditional pension or money from selling a home that would lower their target savings rate.
If you are not currently saving this amount, don’t be discouraged. The important thing is to start saving – even a small amount – and increase that amount when you can. Come back and update this worksheet from time to time to reflect changes and track your progress.
Here are a few tips on how to save smart for retirement:
- Start now. Time is critical. Start small, if necessary.
- Use automatic deductions from your payroll or your checking account.
- Make saving for retirement a habit.
- Be realistic about investment returns.
- If you change jobs, keep your savings in the plan or roll them over to another retirement account.
- Don’t dip into retirement savings early.
- If you pay someone for investment advice, ask them to confirm in writing that they are “fiduciaries”—meaning they are obliged to work in your best interest.
To track other resources you may have in retirement, start by getting your Social Security statement and an estimate of your retirement benefits on the Social Security Administration’s website, www.socialsecurity.gov/mystatement.
The online interactive target retirement savings rate worksheet and other financial planning worksheets are available on EBSA’s website: www.dol.gov/ebsa. You can save your worksheet data there so that you can come back to update it to track progress or adjust for changes.
You can order a free copy of the Savings Fitness publication or contact a Benefits Advisor with questions electronically at askebsa.dol.gov or by calling toll-free 1-866-444-3272.
Get started today for a secure financial future!
Social Security and How It Works
What’s Social Security?
Social Security is a federal government program that provides a source of income for you or your legal dependents (spouse, children, or parents) if you qualify for benefits. You also need a Social Security number to get a job.
Find how to apply to get a Social Security number or to replace your Social Security card.
How Do Benefits Work and How Can I Qualify?
While you work, you pay Social Security taxes. This tax money goes into a trust fund that pays benefits to those who are currently retired, to people with disabilities, and to the surviving spouses and children of workers who have died. Each year you work, you’ll get credits to help you become eligible for benefits when it’s time for you to retire. Find all the benefits Social Security Administration (SSA) offers.
There are four main types of benefits that the SSA offers:
How to Open a “my Social Security” Account
If you receive or will receive Social Security benefits, you may want to open a "my Social Security" account. This online account is a service from the SSA that allows you to keep track of and manage your SSA benefits, and allows you to make changes to your Social Security record.
How to Find More Help
If you have specific questions about your Social Security benefits, you can review the Social Security Administration’s frequently asked questions or contact them directly.
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Federal Employee Retirement Planning and Management
If you are a federal employee planning to retire or a federal retiree looking for information about your benefits, the U.S. Office of Personnel Management (OPM)'s Retirement page can help you:
If you are the survivor of a deceased federal employee or federal retiree, you may be eligible for death and survivor benefits. Visit the OPM website to report the death and apply for death benefits.
Thrift Savings Plan
In addition to the defined or basic benefits provided by your CSRS or FERS plan, if you are a current federal employee, you can boost your retirement savings by participating in the Thrift Savings Plan (TSP). The TSP offers the same types of savings and tax benefits as a 401(k) plan.
Credit for Military Service
Military service does not automatically count toward civil service retirement.
The Internal Revenue Service (IRS) offers an online tool and an online publication to help you determine whether or not your pension or annuity payment is taxable.
Contact OPM's Retirement Operations Center
For benefits information or help with a transaction, contact OPM's Retirement Operations Center.
State and Local Government Employees
If you are a state or local government employee and have questions about your pension plan, contact your agency's personnel department. You can also contact the Employee Benefits Security Administration (ESBA) for help.
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