How much is 'enough' for retirement?
Finally, divide the remaining amount by 4.5 percent -- figuring that you can take, on average, 4 percent to 5 percent a year from your retirement nest egg.
The final figure represents
the approximate pot of money you'll need to
be able to withdraw your desired income over
the long term, she says. You can also use
planning calculator and Bankrate's investment
goal calculator to help clarify your retirement
Also be aware that the current economic situation has altered some of the long-established norms used in retirement planning.
Two big numbers that will affect
your retirement nest egg are rates of return
on your investment and rates of inflation.
For a historical inflation average, many financial
planners use numbers ranging from 2 percent
to 4 percent. And, for rates of return, they
generally look at numbers ranging from 4 percent
to 8 percent.
And historically, there's a
relationship between inflation and return,
Tignanelli says. Typically, he uses a 2-to-5
ratio, figuring if inflation is 2 percent,
clients likely can get a 5 percent return
on their money. But "right now, we're in an
unusual period -- I don't know that it's happened
before," he says. "The rate of inflation is
higher than the return."
As a result, "I've been telling every client in the past six months to be at least 50 percent in the safest thing you can find and invest the other 50 percent," he says.
Stein, who believes the stock market will rally, advises a similar philosophy. "Go back to the old saw of having roughly equal amounts in U.S. Treasury bonds and stocks," he says.
The third big number you want
to analyze is the amount of money you will
withdraw every year. The range here tends
to be tighter -- from 4 percent to 5 percent
-- but that varies with the individual, too.
It also depends on your life expectancy and
whether you want to leave any money to your
children, Edelman says. But "most people will
fit 4 (percent) to 7 percent," he says.
And not all retirement account balances are created equal.
But the most important thing,
no matter where you put the money, is to keep
putting it away somewhere. "The biggest hurdle
in these times is starting to save," he says.
"Too many people are not doing anything."