Once your Average In­dexed Monthly Earnings (AIME) is calculated, the Social Security Administration applies a percentage, called a Replacement Rate, to arrive at your monthly social security statement of benefits amount. The average Replacement Rate is 40 percent. However, the rate tends to be higher for low-income workers and lower for higher income workers. In this progressive way, lower-paid workers—who in theory would have less opportunity to save—get proportionally more of their incomes replaced by Social Security. (more…)

It doesn’t matter how much money that people could have, we all won’t ever be truly comfortable and secure enough for retiring. This is because we are unable to estimate the amount of money we will need in retirement. The single most frequently asked questions I get has to do with retirement. Particularly, everyone is questioning how much money to retire they have to have for retire comfortly and securely.

If you put your money in simple Certificates of Deposit for your retirement investment, a realistic rate of interest for these types of retirement accounts is an average of 6 percent. Assuming an inflation rate of 3 percent, you would have to put $30, 000 gained back into your principle of bonds and CDs, so that you will get the same sum of money each year after inflation.

In most parts of the US and with the average lifestyle of retires, this isn’t enough money to retire. The benefits are easy to understand–the reduce the interest rate, the lower your monthly payment and total cost of buying a home. When you have twice the amount in principle (2 million dollars instead of 1 million dollars), then you would be earning $60,000 a year after inflation. Let’s say you again no longer have a mortgage to pay, have a million dollars to invest earning an average of 6%, and need $60, 000 a year to live (and you need to increase this amount by 3 percent every year for inflation). Do you need more or less than $60, 000 a year to live in retirement? So this scenario is not a good retirement investment advice you will follow trough.

To make calculating even more difficult, it is unlikely that you will invest all of your retirement money in bonds and CDs. Let’s say after two years in retirement, you lose a large percentage of your investments from typical market volatility. This may force you to return to the work force in your silver light years.

Furthermore, you will have to expect unstable bills into your retirement calculations, such as periodic medical bills, an unusually expenses along life, a new car every decade or so, possible assisted living, and so on. You will likely need more income than anybody can reasonably predict, especially since it is nearly impossible to guess how long you will live with any accuracy and reliability.

Therefore, I hope I have convinced you to seriously think about how much money is needed when heading off retirement. And try to never touch your investment principle and always factor the rate of inflation, otherwise you may run the risk of not having sufficient money in retirement particularly if you live a very long life with a lot of medical bills. And if you are very conventional with your investments and way of life requirements, then you will need a minimum of two million dollars along with a home that is already paid to retire.

The short response to the question, “How much money do I need to retire?” is “It depends”. If there is a lack of money, you’ll need your cost savings to supplement them. If the sum required is greater than 4 %, then you definitely probably need to save more or push back your own retirement time. Every scenario differs from the others and unique.

If you are counting on your 401k plan for retirement - beware! The current financial crisis and stock market collapse are troubling enough, but what many retirement savers don’t know is that their 401k plans may not be up to the task.

401k’s have become the predominant retirement funding tool in the U.S. Twenty-five years ago, traditional defined benefit pensions plans were the primary type of retirement plan covering more than 60% of the workforce that had pension plan coverage. Today, defined contribution plans (mostly 401k) are the primary retirement plan for 63% of the covered workforce. (more…)

There are many myths and misconceptions get in the way of realizing the full potential of retirement. Bellow are a few of the most common ones. Watch for them and don’t allow them to ruin your chances for meaningful and reap the benefit of your retirement.

The Retirement/Early Death Myth

You probably know people who were not around long after their retirement parties. The unhappy news causes strange reactions. “It’s too bad Joe didn’t work longer.” “The moment people retire, they grow old.” “I’d still have Fred if he hadn’t retired so early.” (more…)