“I’ve heard that the average person needs 80% of their current income level for retirement. What goes into that figure? Does that 80% include paying on a mortgage? Leaving a financial legacy to others? If neither of these two cases are valid, would that % come down?“
Believe me, I know – it’s confusing. These averages – whether you hear 70%, 80% or 85% – are generally considered what is needed to maintain your current standard of living. That means provided you save X amount, you’ll be able to continue living as you are right now, minus going to work every morning. Sounds pretty good, no? If you golf on Saturdays today, you’ll still be able to golf on Saturdays. But if you don’t travel currently, don’t expect to be a jet setter in retirement.
That said, I have to tell you that I don’t like these rules of thumb. They’re a good guide, but the best way to plan for retirement is to run the numbers based on your specific needs. And the best place I’ve found to do that is the Ballpark E$timator at choosetosave.org. You’ll input specifics about your individual situation – expected Social Security income, any additional cash flow from pensions or part-time work, your planned retirement age – and the calculator will crunch the numbers and give you a good idea of your savings target. Then you can work on reaching it, by putting away money toward that goal each and every month. The best part? You’ll find it’s easier to do that when you have a tangible savings target in mind.