How much in retirement savings do I need for a secure retirement? Is $100,000 enough? How about $700,000? Even more importantly, how much monthly income can I count on those savings providing to supplement my Social Security benefits?
These are questions most of us have no idea how to answer.
A soon-to-be-proposed regulation from the Department of Labor should help. It would require that statements from 401(k)-type accounts provide an estimate of monthly retirement income from savings in the account. The statement could provide an estimate based on the amount of money currently in the account and another based on what we would have if we continued to save at the same rate until we reach retirement.
This information would help to answer questions like “Am I saving enough?” for younger workers and “What can I expect when I retire?” for those nearing retirement.
More importantly, this information could come with an additional estimate showing how much retirement income we could expect if we saved just a bit more than we are now. Studies show that knowing how much monthly income a person can expect from retirement accounts spurs them to save more. And higher retirement savings make it more likely that the answer to the question “How much can I expect when I retire?” will cause pleasant dreams rather than nightmares.
Until the proposed income estimate starts to appear on statements, the Department of Labor has a simple online calculator that can help to provide this information. The calculator shows retirement income in terms of today’s purchasing power. For instance, if a 35-year-old earning $50,000 a year and saving 7 percent of income ($3,500 a year) has $100,000 now, he or she could expect about $559 a month starting at age 65 in addition to Social Security benefits. Saving at the same rate until age 65 would build a nest egg of $531,000 that would provide about $2,970 a month. Saving an additional $50 a month starting now would increase retirement income by about $200 a month.
A word of caution: Both the calculator and the monthly income estimates that may start to appear on 401(k)-type statements are only estimates – and not guarantees. Circumstances – both personal and economic – may change, and the amount that a person can expect may change with them.
However, these estimates are a good start toward telling us how much income we may have from our savings when we retire. Combining this information with an estimate of Social Security benefits will provide a much clearer picture of our retirement security prospects.
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