HONOLULU (HAWAIINEWSNOW) - On average most of us are not saving enough for our retirement. The earlier you start, the stronger your financial situation could be when you decide to retire. How much should you put away feel like you can't afford it?
Bank of Hawaii vice president Billy Pieper joined Sunrise on Monday morning to talk about saving for retirement.
The average American saves at a rate that replaces only 57% of their income. That means that for a family making $70,000 while working, they will have to live on a little less than $40,000 if they were to rely upon their retirement savings alone.
Although this economic downturn has actually caused many Americans to increase the amount they save, most are still well below the appropriate savings rate. What's the amount of savings we should be striving for at retirement?
That number is going to vary from person to person based on a variety of factors such as expenses during retirement, retirement income from other sources, investment performance, and obviously inflation.
Without getting into too much detail let's work backwards and assume that a person, aged 65, has accumulated $1,000,000 at retirement.
If this individual withdraws $70,000 per year and earns a somewhat bullish 5% on his $1,000,000, his account will last 25 years or until age 90. So if $70,000 a year for 25 years is enough during retirement, then $1,000,000 would be a good goal.
Many of us are familiar with 401k plans, but there are other ways to save too, right? For instance, an IRA or a Roth IRA? Which one is better?
Again, that depends on your individual situation. In a traditional IRA you make contributions with pre-tax money, meaning money that you haven't paid any taxes on. Upon distribution, you are taxed based upon your designated tax bracket. In a Roth IRA you make contributions with after tax money, meaning money that has already been taxed. Upon distribution however, your withdrawals are made tax free. I'm not a tax advisor and I'd recommend consulting with one prior to making any decisions, but many experts believe that a Roth IRA is a great fit when you believe you will be in a higher tax bracket during retirement where a Traditional IRA may be better if you will be in a lower tax bracket during retirement.
Bank of Hawaii Seminar
Fleet & Family Support Center
2nd Floor
4827 Bougainville Drive
Tuesday
5 - 7 pm
Park in the Moanalua Shopping Center. Take the walkway between Jamba Juice and Starbucks. For questions call: 694-6302
