The amount of money you will need to retire at 55 depends on the lifestyle you want to have, the yearly income you want and how much inflation you factor into your calculations. Your age when you start saving for retirement also comes into play. The more time you have to save, the more you could potentially put away for retirement.
Retiring earlier means you will need more money at retirement to account for the number of years you will not be working. According to the Centers for Disease Control and Prevention, the average life expectancy for an American based on 2010 data is 78.7. If you retire at 55, you will need to plan for financial stability for 24 years at least ; someone who retires at 65 would plan for 14 years of retirement.
Yearly Retirement Income
On average, people expect to need about 65 to 70 percent of their current yearly salary in retirement. A 25-year-old making $60,000 annually wishing to retire at 55 would need $1,484,980 in retirement savings by the time he retires. This number is based on an annual retirement salary of $39,000, or 65 percent of current salary, for 25 years of retirement at 3 percent yearly inflation rate, using Bankrate’s retirement calculator.
To determine how much you need to set aside from your income today, you can use various reach online tools to calculate the percentage or speak with a financial planner. In the example, to reach the $1.4 million needed to have an annual income of $39,000 during retirement, that person would have to put aside 28 percent of his income in a retirement savings account. According to CNN Money’s Retirement Planner calculator, that savings percentage will be enough to reach the desired amount. This assumes the investment plan is very aggressive and will gain an average of 2.92 percent between the time he starts saving and retirement, and that he will receive $16,453 in annual Social Security benefits. This does not take into account pensions, employer contributions or benefits from partners. Additionally, the 28 percent saving is based on the retirement plan contribution limit of $17,000 annually set by the Internal Revenue Service for 2012.
Average Savings Plan
On average, most people do not have enough saved for retirement, according to the Employee Benefits Institute. Those younger than 35 have less than $6,000 saved on average and 55-year olds on average only have $65,000 saved -- far less than the amount needed to retire comfortably for the next 25 years. The Center for Retirement Research in Boston suggests, to retire by 62, saving 22 percent of salary starting at age 25 for workers with average income of $43,000. Retirement savings is never one-size-fits-all, bar the one constant which is start saving early, especially if you want to retire by 55.
- Centers for Disease Control and Prevention: FastStats - Life Expectancy
- Good Financial Cents: Average Retirement Savings by Age - How Does Your Savings Stack Up?
- Bankrate.com: Retirement Calculator
- CBS Money Watch: How much should Gen X and Y save for retirement?
- CNNMoney: Retirement Planner
- IRS: IRS Announces Pension Plan Limitations for 2012
- Jupiterimages/Comstock/Getty Images