Are you on track with your retirement savings?

(Just so ya' know, I'm not a financial planner, and the information in this post is not designed to be financial planning advice. Make sensible, informed decisions for your own future. As my father used to say, "you're on your own, kid!")

This is a scary question that my husband and I have to grapple with every year. And this is a milestone year for us, as he (that old guy) turned 55 this year. Are we saving enough for our golden years? While, for the moment, it seems like we could just continue earning up till age 70, the reality is that age-related difficulties could cut those earning years short.

Many folks put off saving for retirement until the day when they're finally making The Big Salary. We've just recently seen with this past recession, that day may never come.

We save for our next vacation, to buy a home, to pay for children's education, or to buy a new car, before we put serious thought into how much we save for retirement. Most Americans are not saving enough. The assumption that if we make the minimum contribution, or even a bit above, this will amount to a great amount of money at the end of our working years. But it just does not bear out in reality.

Are you saving enough for your retirement? To figure this out, here's a general rule of thumb that many experts agree upon, based on your income and categorized by age:

By age 35, you should have one (1) times your annual salary

By age 45, you should have three (3) times your annual salary

By age 55, you should have five (5) times your annual salary

By age 67 (what will be the standard retirement age beginning with the tail end of the baby boomers), you should have eight (8) times your annual salary


To add it all up:

1) Take your personal savings/investments that you do not intend to spend until retirement. Don't count in savings to buy a home, or to finance your children's education, (unless the deal with your children is they will pay you back every single cent, in which case I suggest you draw up a legal and binding agreement with them, concerning repayment).

2) Add in any IRAs, 401(k) (or similar) savings through your employer.

3) Add any annual pension or annuity pay-outs (but not Social Security payments) you expect to receive multiplied by 17 (men), or 19 (women). These are the current number of years a person can expect, on average, to live beyond age 67 retirement, here in the US.

4) Add the realistic value of any significant property that you expect to sell at retirement. Do you have a business, practice or partnership that you will be selling your interest in? Do you have a particularly valuable collection (be realistic here, we all think our treasures have value) that you intend to sell to fund retirement (be honest, do you really plan on selling, or were you thinking to pass this on to heirs)? Are you holding land for investment purposes?

How are you doing with your retirement savings?

Are you on track? If not, it's never too late. Take a look at your current budget. Can you make sacrifices someplace to double-up on funding your retirement?

Is there a way you can increase your income? It's a lot easier to work extra hours now while you're young and fit, than it will be when you're 80-something and needing to work a few hours a day, just to pay for your meds.

Can the above figures be scaled back because you feel you have many frugal talents, which could bring your costs for retirement down? Well, yes and no. In the best case scenarios, we'll all be strong, vital and healthy enough to garden, chop wood for heat, cook and bake from scratch every day, and camp for vacations.

But best case scenarios don't always pan out. One spouse may become seriously ill and require so much of the other spouse's time and energy that these frugal activities just can't be fit into a day. Or, if you're counting on your hubby to do the wood chopping, and he no longer can, who will chop your wood? Or will you rely on your furnace (costs money, and older folks tend to like their homes a bit warmer than us young'uns). What if you need elder care or assisted living?

So, if I was guessing for my own circumstances, I might possibly scale the above figures back only 5% and we'd do okay. It's a tough gamble to take. My spouse and I have demonstrated a commitment to frugal living, in the past. But there are so many unknowns looming in our futures.

In addition, retirement can bring it's own financial challenges, such as more free time to shop, dine out and travel, increased medical/healthcare needs, and for some, the feeling like "I've been careful with money all my life, now it's time to live a little".

In my opinion, it's far better to over-save than under-save. If you over-save, worst case scenario, you have a blast spoiling your kids and grandkids rotten, you travel the world, you give generously, you enjoy dining out (and not just the early-bird special), and you leave a tidy little inheritance for the heirs or charities of your choosing. If you under-save, you face many years of scrimping, being less than comfortable, and perhaps feeling a burden on your kids.

If you are still young-ish, and haven't really made serious attempts to save for retirement, get going now. Compounding is an amazing thing. Small amounts saved at age 25 grow to large amounts by age 67. And keep in mind, the longer you can delay retirement, the smaller your next egg needs to be -- stay healthy!

For my husband and I, it looks like we're on track, when we lump together personal savings, IRA's,  401(k)s, and a small pension. Some folks add in the value of their homes. But as we prefer to stay in our home, we've not included its value in our retirement pot. I must say, it's a bit frightening when I open up individual statements, and see such a puny amount put away. But by adding it all together, I can see that we're on track for a comfortable enough retirement. And that is a huge relief. Next milestone, age 60 -- will we still be on target? I can only hope so!