Experts say many of us are "woefully unprepared" for retirement, but I'm feeling fine despite the fact that I'm only 10 percent of the way to my savings goal. Based on conservative estimates, I figure I'll need about $600,000 to retire if I live to be 100.
According to a recent article by The Exchange, retirement accounts are swelling after hitting the bottom in about March 2009. A recent Fidelity report shows their clients have an average 401(k) balance of $81,000, which is up 75 percent from the bottom.
Not everyone experienced the whopping recovery in their retirement accounts. Because of my less-than-stellar returns, I only trust myself with about half of my retirement funds. At the same time, I won't risk more than half my funds in the hands of professionals either.
Figuring out my needs
Although some experts say Americans are not financially prepared for retirement, I am not stressing out about it at the age of 40. Based on the expert rule of thumb, I need $100,000 of savings for every 10 years in retirement if I want to replace $1,000 of monthly income. I figure I'll need $2,000 of monthly income so I need $200,000 for each 10 years I don't work in retirement. I expect to live to be 100 after retiring at 70. Therefore, I only need $600,000 to make it to age 100.
Investing half on my own
I like to compare the rate of return in my professionally-managed 401(k) with my own investing results within my IRA account. Lately, it's been downright embarrassing how much better the professionals are handling my retirement funds. The year-to-date results reveal a personal rate of return of 10 percent in my 401(k), compared to my negative one percent in my Rollover IRA that I singlehandedly control. However, other years I have had better results than the professionals.
Giving it time
One of the reasons that some people are doing better with their investments than others is because of the time factor. Older workers over the age of 55 had an average 401(k) balance of $255,000, Fidelity reported. Experts say the increase can be attributed to the rallies in the stock market as opposed to older people saving more for retirement. Over time, I should realize some positive gains in my IRA account. I just need to be patient.
Saving much more
I admit I've gotten lazier about saving money for retirement. As my investments began to recover, I relaxed my saving habit. According to The Exchange, the average savings rate is only 2.7 percent. I used to save 20 percent for retirement, but now I only save 5 percent. If I was saving more for retirement, I'd be able to steadily increase my balance even during times when stocks pull back.
If I stay on the same path as I'm on now, I believe I'll have more than I need for retirement. I don't mind working until I'm 70 because I love what I do. As I save and invest for retirement, I'm simultaneously paying off my mortgage so my expenses will be lower when I'm older. I may never feel rich, but I'll be prepared for a middle-class retirement.
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