When you look ahead 20, 35, or even 50 years, how do you envision your life? Where will you be living? How will you spend your free time? For most of us, our biggest concern is being as financially comfortable during retirement as we are now. In the best case scenario, you'll steadily improve your financial prospects every year, so one day you'll be able to afford to buy that beach-front home, take a luxury vacation, or pursue a hobby full-time. However, the future may cost more than you think.
To enjoy "the good life" after you retire, you'll need to focus on saving substantially now. In fact, you'll probably need to save more than you think just to afford the everyday basics. A good rule of thumb is that you'll need as much as 80%-90% of your current annual income each year, or nearly the full salary you earned while working.
The money you may receive from Social Security each year will provide only a small portion of what you'll need during retirement. On average, today's retirees receive only $477.80* each month from Social Security. In past decades, Social Security and company pension plans were expected to serve as the sole funding for retirement. But as the income gap grows larger, it's highly unlikely that these income sources will be enough for a comfortable retirement.
The graph below shows that current retirees receive 61% of their retirement income from a company pension plan and Social Security, while future retirees can expect to receive only 29% from these sources. This means that over 70% of your retirement income may have to come from your own personal savings. This is not pocket change.
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Personal Savings Expected to Play a Larger Role in Retirement
Survey of retirement income sources.
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| Today's Workers expected source of retirement income |
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| Today's Retirees actual source of income |
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Source: Employee Benefit Research Institute, 2007 Retirement Confidence Survey.
Data present in 2007 Retirement Confidence Survey may not total 100 due to rounding and/or missing categories.
Morningstar, Inc., 2008.
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If you’re currently contributing to your workplace retirement plan, you're off to a good start. But that’s just one part of a complete savings plan. To ensure a comfortable retirement, today’s investors require a mix of income sources. One of the most important funding components is an IRA. At CEP, we offer a variety of IRA solutions through Equity Trust Company.
* U.S. Social Security Administration, Office of Policy, SSI Monthly Statistics, January 2008, www.ssa.gov.
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