December 19, 2010 in Business

Are you on track for retirement?


It’s unusual for someone to feel financially well-prepared for retirement.

That’s due partly to the poor performance of stocks over the past decade. But mostly it’s due to people not socking enough money away or planning ahead.

Here are some questions to ask yourself to help determine whether you’re on track with a sound financial plan and on the road to a financially secure retirement:

1. How much will I need to retire?

A rough guideline is that you’ll need to replace 75 to 85 percent of your pre-retirement income in order to maintain the same lifestyle. Social Security will help, although it probably won’t be enough; the average monthly check is only $1,160. Visit to estimate your retirement benefits.

2. Am I saving enough?

Guessing isn’t good enough. At a minimum, plug in some numbers at a free online retirement calculator. AARP has a recently updated a calculator at, and the Employee Benefit Research Institute also can help you generate a quick ballpark estimate at http://choose Others include those offered by leading financial services firms such as Fidelity, Charles Schwab, Principal Financial and Vanguard.

3. How much can I withdraw during retirement?

The 4 percent rule advocated by many financial planners holds that if you withdraw no more than 4 percent of your portfolio in the first year of retirement and then increase that amount for inflation each year, your money should last at least 30 years. That rough guideline takes into consideration the role of expected earnings on your portfolio as well as inflation.

To estimate what you’ll need to save for the first year of retirement, multiply what you’ll need to withdraw from your account by 25 (this equates the amount to 4 percent). So if you anticipate needing $50,000, you should have $50,000 times 25, or $1.25 million, saved.

4. Am I burdened by too much debt?

Make it a priority to pay off your mortgage and any other major obligations before you retire. But if you’re paying more than about a third of your pretax income on all debts, you’ve probably borrowed too much. Consider how you can cut back to increase savings.

5. Do I have the right mix of investments?

A long-held rule of thumb is that you should subtract your age from 100, and put that percentage of your savings in stocks and the rest in bonds. But with life spans increasing, many advisers say that’s too conservative and leaves you at risk of falling behind inflation and running out of money. Some suggest subtracting your age from 120 instead.

6. Do I have an estate plan?

Long before retirement, everyone should have an up-to-date estate plan with a will, beneficiaries for all accounts, a durable power of attorney, a health-care proxy or living will and possibly trusts for any minor children.

7. Am I properly insured?

An unexpected setback could derail your plans. Make sure you’re up to date on life, disability, homeowners and liability insurance. And consider getting long-term care insurance in your 50s or early 60s. Figure out which coverage would be the best fit by checking sites such as that of the National Clearinghouse for Long-Term Care Information,

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