Friday, January 17, 2025, 9:20PM |  40°
MENU
Advertisement
A single male age 40 contributing 9 percent of salary at $20,000 a year would need $14,619 already saved for a 50 percent chance of retirement success.
1
MORE

Saving early can be a savior for your retirement

Daniel Marsula/Post-Gazette

Saving early can be a savior for your retirement

With few years left in the workforce and thus less time to save for retirement, a 55-year-old man earning $40,000 a year with no nest egg would need to contribute 24.5 percent of his salary to a workplace retirement account until age 65 to even have a 50 percent shot at a financially successful retirement.

But a 25-year-old with the same salary and no savings would only need to contribute 6.4 percent of his salary for a 75 percent chance of financial success, according to a report released Wednesday by the Washington, D.C.-based Employee Benefit Research Institute. Because of their longer life spans, women typically will need to save more than men.

“This analysis answers two key questions: How much do I need to save each year for a successful retirement? And how large do I need my account balance to be after saving for several years to be on track for a successful retirement given my future contribution rate?” said the Institute’s research director Jack VanDerhei.

Advertisement

What the calculations show is that the adage is especially true when it comes to saving for retirement: Time is money. The earlier a person starts setting aside money for retirement, the less he or she will need to save every year.

Weighted down with student loans, credit card debt and measly saving accounts, the vast majority of people from Generation X have come to believe the traditional definition of retirement is a romantic fantasy of the past.
Tim Grant
Are retirees thinking differently about their future?

Mr. VanDerhei pointed out that commonly used retirement savings calculators simply use a percentage of income as an optimal savings goal, but that method ignores such important factors such as life span, post-retirement investment risk and nursing home costs.

“One of the biggest obstacles to retirement income adequacy for households who might otherwise have sufficient financial resources at retirement age is the risk of long-term care costs for a prolonged period,” the report said. “In the real world, few retirees have long-term care insurance policies that would cover the potentially catastrophic financial impact of this exposure.”

The Institute’s analysis presents the required contribution rates for those starting to save at ages 25, 40 or 55. It also presents the minimum account balances required for those contributing to their plans at 4.5 percent, 9 percent, and 15 percent of salary, and shows how much they should have saved at a particular age to be on track for a successful retirement.

Advertisement

For instance, a single male age 40 contributing 9 percent of salary at $20,000 a year would need $14,619 already saved for a 50 percent chance of retirement success. If his salary were $40,000 a year, he would need a minimum balance of $47,493 in savings for a 75 percent chance of success. But at a salary of $65,000 a year, he would need $4,616 of pre-existing savings for a 90 percent chance of success.

To access the full report, go to: www.ebri.org.

Tim Grant: tgrant@post-gazette.com or 412-263-1591.

First Published: March 26, 2015, 4:00 a.m.

RELATED
Tim Grant
Juggling orphaned 401(k) plans can be a challenge
A 2014 survey by the Employee Benefit Research Institute found that 49 percent of retirees surveyed had retired earlier than they had planned.
Tim Grant
Study: Many retire earlier than originally planned
SHOW COMMENTS (0)  
Join the Conversation
Commenting policy | How to Report Abuse
If you would like your comment to be considered for a published letter to the editor, please send it to letters@post-gazette.com. Letters must be under 250 words and may be edited for length and clarity.
Partners
Advertisement
Quarterback Kenny Pickett, left, the Pittsburgh Steelers first-round NFL football draft pick, poses for a photo with president/owner Art Rooney II at the team's training facility in Pittsburgh, Friday, April 29, 2022.
1
sports
Joe Starkey: Steelers offense in disrepair thanks to series of misguided, arrogant decisions
Steelers wide receiver Mike Williams (18) celebrates with teammates George Pickens and Jaylen Warren after scoring a touchdown against the Washington Commanders, Sunday, November 10, 2024, in Landover, Md.
2
sports
Steelers season-ending superlatives: Most pleasant surprise, best moment, worst play and more
Ice on the Allegheny River in Downtown on Tuesday, Jan.14, 2025. Pittsburgh is forecast to see extreme cold weather next week, with wind chills of 25 degrees below zero possible.
3
news
Pittsburgh is under an extreme cold watch. Here's what that means and what to expect.
WPIAL Basketball Stock
4
sports
WPIAL places Imani Christian boys basketball program on 1-year probation
Dave McCormick at the Smith Family Farm in Westmoreland County on Sept. 23.
5
news
Energy secretary pick Chris Wright tells McCormick he’s all-in on LNG, boosting Pa. AI industry resources
A single male age 40 contributing 9 percent of salary at $20,000 a year would need $14,619 already saved for a 50 percent chance of retirement success.  (Daniel Marsula/Post-Gazette)
Daniel Marsula/Post-Gazette
Advertisement
LATEST business
Advertisement
TOP
Email a Story