Uncertainty over the future of Social Security, longer life expectancy, and inflation all factor into how much you'll need to save for a comfortable retirement. So many changing facets of the American workplace have made it more important than ever to take control of your financial future. By investing now with a long-term focus, you can greatly improve your chances of having a fulfilling retirement.
Americans used to count on a pension plus Social Security to get them through those "golden years". These days, people change jobs more often, rely on dual incomes, and manage their own retirement funds through defined contribution plans. By most estimates, you'll need between 60% and 80% of your final working years' income to maintain your lifestyle after retiring. Social Security represents approximately 39% of the typical retiree's income, according to the Social Security Administration.
Also, as you begin thinking about how much you'll need for a comfortable retirement, you may be startled to learn the impact of inflation. At an average inflation rate of 3%, your cost of living would double every 24 years. Your annual income will need to increase each year even during retirement in order to keep up with the gradual rise in prices of everyday goods.
You'll also have to consider the likelihood of increased medical costs and health insurance as you grow older.Financial experts estimate that most of us will need about 60% to 80% of our annual preretirement income to live on each year after we retire. Of this, only about 39% will come from Social Security. The rest must come from our investments, such as mutual funds and other investment products.
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