Mutual Funds Interactive -- Mutual Fund News and Features

MFI presents excerpts from Dearborn Financial Publishing's new book, Love, Marriage, And Money, by Alan Lavine and Gail Liberman, two veteran mutual fund writers. Copyright 1998. Reprinted with permission. To order a copy of Love, Marriage, And Money, visit our online bookstore.

How Much to Save for Retirement

Once the Social Security and retirement plan part of your financial house is in top shape, you must figure out how much income you'll need when you retire. Your pension and Social Security, as mentioned above, should give you about 60 to 70 percent of the income you have before you retire. That may sound like you're taking a pay cut. But nearly 25 percent of our wages goes to job-related expenses. You'd be surprised how much you spend to look sharp and feel sharp! Particularly if you work with your hands or by the sweat of your brow, you probably go through lots of work clothes. When you retire, you'll be happy to learn you don't have to worry about all that. You won't have commuting expenses and may only want one car. So, if you bring in 60 to 70 percent of your income, you're doing fine.

To get a fix on how much you need for retirement, print and fill out the worksheet below. It will help determine how much extra you need to save, assuming that inflation increases at 4 percent a year.

* * * * * HOW MUCH YOU NEED TO SAVE FOR RETIREMENT * * * * *
1. How much annual income do you need when you retire? Figure 80 percent of your current income.	________________
2. How much social Security will you get a year? Call the Social Security Administration at 800-772-1213 and ask for a request for Earnings and Benefits Statement. The report will tell you how much you will get based on what you've already paid in.	________________
3. How much will you get from your pension plan at work? Get that number from your employer.	________________
4. What's the savings gap or short-fall? Line 1 minus line 2 and 3.	________________
5. How much will you need to fund your retirement, assuming we have inflation? Multiply your answer on line 4 by an inflation factor of 14.3 if you are age 65 or over, 16.5 if you are age 55 to 64, and 18.3 if you are age 45 to 54.	________________
6. How much have you saved already, excluding your company pension? IRA, Keogh, or SEPs 401(k)
Annuities	________________
CDs	________________
Savings accounts	________________
Mutual funds	________________
Total savings	________________
7. What is the estimated value of your total savings from line6? Multiply line 6 by the inflation factor B, listed in the table below, based on the number of years you have remaining to retirement.	________________
8. Amount of retirement money you need. Line 5 minus line 7.	________________
9. How much do you need to invest each year to reach your goal? Multiply line 8 by the inflation factor C, listed below, based on the number of years you have to retirement. Note: If you employer pays matching contributions into your 401(k) plan, you can subtract the amount of that contribution from your total.	________________

* * * * * INFLATION FACTORS FOR LINES 7 AND 9 IN THE ABOVE TABLE * * * * *

Years Until Retirement	Factor B	Factor C
6	1.27	.151
8	1.37	.109
10	1.48	.083
12	1.60	.067
14	1.73	.055
16	1.87	.046
18	2.03	.039
20	2.19	.034
25	2.67	.024
30	3.24	.018
35	3.95	.014
40	4.80	.011

Source: Scudder Investor Services, Inc. from the Scudder Investor Series