weekly blog--one for the ages
On Tuesday, my wife and I met with her mother’s financial advisor to review her investment portfolio to make sure she would have enough money to live out her remaining years in comfort, and to pay for any unforeseen medical bills. And then I thought about what my wife and I have saved to date, and how much money we frittered away paying for our children's education.
According to the experts, the average person will generally need about 80% of pre-retirement income to live comfortably as a senior. And while Social Security might, in theory, provide about half of that, the rest frequently needs to come from savings. Enter the 4% rule which states that if you begin by withdrawing 4% of your savings' value during your first year of retirement, and then adjust subsequent withdrawals for inflation, your nest egg is likely to last 30 years. Though it's not perfect, the rule's value lies heavily in helping people establish solid savings targets to work with.
So how much should one save for retirement?
As a rule of thumb, most experts recommend an annual retirement savings goal of 10% to 15% of your pretax income. High earners generally want to hit the top of that range; low earners can typically hover closer to the bottom since Social Security will usually replace more of their income. However, one of the savings dilemmas many American families face: does building up the college fund or saving for retirement take priority?
T. Rowe Price asked a thousand parents what they would do, as part of its annual Parents, Kids & Money survey, and 74 percent said saving for college was the higher priority for them. A senior financial planner at T. Rowe Price says that’s an understandable, but well-intentioned miscalculation. The bottom line: if you delay contributing to your retirement savings in order to fund college, you could run out of money in your golden years.
What then? Many parents assume their grown-up kids will be there to help.
A recent survey by NerdWallet found that:
However, relying on your children to help finance your retirement can jeopardize their independence and financial welfare.