How Much to Save for a Secure Retirement
One of the major challenges facing Americans today is how to prepare for a secure retirement. While market ups and downs are unpredictable, people do have control over work and saving decisions that can significantly improve their retirement prospects. This brief uses a simple model to estimate what percent of earnings an individual must save to ensure a financially secure retirement depending on he starts saving, he retires, and how he invests his retirement savings...
The brief begins by describing the target replacement rate – retirement income relative to pre-retirement earnings – required to maintain pre-retirement living standards. The second section describes the simple model. The third section summarizes the results for individuals with average earnings. The fourth section discusses how the results differ for those with lower and higher earnings. The final section concludes that the age at which one begins to save and the age at which one retires are pivotal decisions in determining the required saving rate and can make the difference between a secure or insecure retirement. The Appendix contains detailed tables of the required saving rates for various levels of earnings.