I’m 46 years old, earn $115,000 and have only $3,000 in savings.
What must I do to be able to retire at 65? — Shawn, Georgia
There’s no way to sugarcoat this. You are way behind where you ought to be in building a nest egg. Given your age, you should ideally have a bit more than three-and-a-half times salary, or roughly $400,000, socked away in retirement savings in order to be able to retire at 65 on 80% of your pre-retirement salary, according to the benchmarks in financial planner Charles Farrell’s book, Your Money Ratios.
So your chances of being able to retire at 65 appear to be iffy to say the least, especially if you want to maintain your current standard of living.
Let’s look at some numbers. If we assume your salary increases 2% annually and you start saving 15% of pay a year (which is about what you should have been saving all along), then you’ll end up with a savings balance a little shy of $640,000 at age 65, assuming you earn 5% a year (6% minus 1% in expenses). That’s a good-sized nest egg — and certainly a lot more than you’ll have if you do nothing — but it’s not enough to support you at anything near your current standard of living over a retirement that could easily last 30 years.