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Personal Finance

How will life look after retirement?
St. Petersburg Times


April 05, 2010

Having $25,000 in savings is fabulous if you are 25 but potentially disastrous if you are 55. Age matters and so does the lifestyle you hope to live in retirement. So how are you doing?

Tax season is a great time to evaluate your finances because you've already collected documents containing much of the information you need. Let's put those numbers in perspective.

To get started, use your W-2 and 1099 forms to determine your household income. Then go through your year-end statements to determine the value of all your financial assets, including bank accounts, investments and retirement plans. Leave non-financial assets, such as your home, out of the equation for the moment.

How do your savings stack up? Fifty-three percent of all workers 25 and older, including 36 percent of those 55 and older, have less than $25,000 in savings, according to the Employee Benefit Research Institute. The typical (median) household has $25,300 in financial assets; those in the wealthiest age group (those ages 55 to 64) have $85,700, according to the government's Survey of Consumer Finances.

If you've done better than that, congratulations. But don't start feeling smug just yet.

Still working? Charles J. Farrell, a Denver investment adviser, has published a set of money ratios you can use to determine whether you are on track to retire at 65. That is, retire at 65 and live in the manner you are accustomed to, which by most estimates means replacing 80 percent of income. However, that figure might be less for you depending on your needs and expectations.

To measure your progress, multiply your current gross earned income by an age factor:

2.4 at age 40

3.7 at 45

5.2 at 50

7.1 at 55

9.4 at 60

12 at 65

For example, if your household income is $50,000, you should have $355,000 in financial assets by the time you are 55 and $600,000 by the time you are 65. Financial assets may include retirement plans, bank and investment accounts, business interests and investment real estate. It does not include equity in your home.

The numbers already factor in Social Security, but not income from pensions, rents or other non-investment sources. You'll need to adjust the age factor if you are in between the given ages or if you and your partner are different ages. If you're due for a pension, you'll only need to consider the income the pension won't replace. For more input, go to

Already retired? You can be more precise by taking your actual annual expenses, subtracting non-investment income and multiplying the result by 20 on the assumption that you'll withdraw 5 percent from your financial assets each year. I would recommend adding a cushion for an emergency fund.

I really like the simplicity of Farrell's approach, which is explained in more detail in his new book, "Your Money Ratios: 8 Simple Tools for Financial Security" (Avery, 2010). His benchmarks won't be attainable for everyone, but they give us something to shoot for.

The way to get there, of course, is to save a lot, invest prudently and be careful about debt. Farrell uses a similar age-adjusted approach to mortgage debt, which he says should be no more than twice your household income if you're younger than 35 and be whittled down to zero by age 65.

For a broader picture of your financial status, calculate your net worth by adding up the value of everything you own, including the market value of your home, and subtracting everything you owe, including your mortgage.

If you do this every year at tax time, you can chart your progress.

If you find the results of this analysis depressing, decide now to save more, reduce your spending expectations in retirement or work longer -- or maybe all three.


Helen Huntley, a former personal finance editor at the St. Petersburg Times, is a fee-only financial adviser with Holifield Huntley Financial Advisers in St. Petersburg, Fla.

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