Calculate the amount you'll need for retirement — total may surprise you
By Michelle Singletary
Every other week, I host an online chat at washingtonpost .com. Recently my online guest was Jennifer Openshaw, CEO of FamilyFN and author of the "Quick & Easy Budget Kit." She and I took questions about budgeting. As always, there were a lot of leftover questions. So here are our answers to some of them:
Q: I already put 10 percent of my pre-tax income into a 401(k) retirement plan? Is that enough for retirement? I'm only 29.
Jennifer: How much you need for retirement depends on several important factors such as: what you already have saved, how long you work until full retirement, and how long you expect to be in retirement. Many, many people are vastly underprepared. Your 401(k) is the first place you want to max-out on, but then you probably want to save beyond that.
Michelle: If you don't have a clue how much you might need for retirement, use the Ballpark Estimate Retirement Planning Worksheet at www.choosetosave.org. This is an easy-to-use calculator that takes into account your savings, any pension income you might get and your projected Social Security benefits (under the current system). The worksheet assumes you'll need 70 percent of current income, that you'll live to age 87, and you'll realize a constant real rate of return of 3 percent after inflation. What you get after plugging in your personal information is a rough estimate of what you will need at retirement. I tell you, it's an eye opener to see that figure.
Q: I'm already saving 10 percent of my income and it takes a big chunk of my money. Do I then put away another 10 percent of my salary into savings (in case I'm fired, etc.)?
Michelle: I always think that inherent in this question is this thought: What am I working for if all my money has to go into a savings account? People have the wrong attitude about saving. That's why it's important to budget. You save for what you want. That's what you are working for. We've got it all backward in this credit-card-crazy nation. The way most of us budget is that we get what we want before we have the money to pay for it. That means a lot of people are actually working to get out of a deficit situation. They are working to increase the profits of the credit-card companies. Depending on your personal needs and wants, you may in fact need to save 10 percent or 15 percent or even 20 percent of your income to meet your goals of a down payment on a home, a vacation every year, etc. In other words, we should all be asking ourselves how much do I have left over for expenses after I save.
Q: I was never taught how to do a budget. I have attempted to do a budget and I don't think I have been successful because I'm always in a financial bind. How do I start a budget and what are the necessary components?
Jennifer: First, start with goals. There's really no point to budgeting unless there's something to aim for. If you're a couple, plan your goals together. List your absolute necessary monthly expenses (housing, transportation, food, medical, utilities). See what's left over. Put the majority (or all) of that into savings. Make savings a regular part of your budget. Look to cut costs. Start from the top: When looking for places to save, start with the big items first such as your mortgage, your car payments, or debt costs. Finally, develop a simple strategy for keeping a check on your budget.
Michelle Singletary writes for the Washington Post.
