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How to play catch up with your retirement savings

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.

Where should you start? It would be great if there were a “Make Up For 20 Years of Not Saving” mutual fund you could buy that would churn out annual gains in the high double-digits and quickly build an impressive nest egg with minimal savings effort on your part. But we both know that’s not realistic. The fact is that if you want to have any hope of a post-career life that doesn’t involve a significant drop in your standard of living, you’re not only going to have to start saving, but you’re going to have to do so at a prodigious rate.

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.

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