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Is Your Nest Egg All It’s Cracked Up to Be?

MG-McCullough-Chrisby Chris McCullough

 You hear it all the time as somebody nears retirement age – “I can’t afford to retire.”

Retirement is supposed to be a wonderful time with no worries. Instead you can’t seem to stop thinking about how you’ll be able to afford not working. The key is to start saving early and often and leave that “nest egg” alone, not letting it hatch until retirement.

In the last column, we spoke about getting your money to work for you, and getting it into a savings, money market or certificate of deposit account. That is obviously one of the easiest and earliest steps you can take toward setting up a comfortable retirement.

If you have $20,000 in savings, that’s great – if you are 25. If that’s your total at age 50, it might be time to re-evaluate your finances. According to the Employee Benefit Research Institute, 53 percent of all workers 25 and older have less than $25,000 in savings. Even more astonishing is that 36 percent of those 55 and older have less than $25,000 in savings.


The median household has $25,300 in financial assets and those in the wealthiest age group (ages 55 to 64) have $85,700, according to the government’s Survey of Consumer Finances.


Are you on track to retire at 65? Will you be able to retire at 65 and live in the manner you are accustomed to – normally replacing 80 percent of income? Measure your progress and see where your savings should be. Multiply your current gross earned income by an age factor: 2.4 at age 40, 3.7 at age 45, 5.2 at age 50, 7.1 at age 55, 9.4 at age 60, 12 at age 65.  


If your household income is $60,000, you should have $426,000 in financial assets by the time you are 55 ($60,000 x 7.1) and $720,000 by the time you are 65 ($60,000 x 12). Financial assets include retirement plans, bank and investment accounts, business interests and investment real estate. It does not include equity in your home.


Of course this is a very simplistic approach to judging how much savings you’ll need to retire comfortably. The benchmarks won’t be attainable by everyone, but they do give us a general range.


The keys to getting to your financial goal are to save a lot, invest prudently and be careful about your debt. Decide now to save more and you’ll have taken that first step toward a joyful retirement.


Chris McCullough is Rabobank, N.A. Vice President and Branch Manager in Murrieta. Rabobank, N.A. has 119 retail branches in California, including Murrieta.