numbersYou may not be working in retirement, but does the math work in allowing you to afford it by, say, age 65?

Doing so means “you need 11 times your final salary. That’s how large your retirement nest egg must be, according to Aon Hewitt, a human resources services provider,” writes Paul Katzeff in an excellent piece headlined How You Can Save Enough For Retirement. “And any monthly benefit you might receive from Social Security does not impact that savings amount. So, how do you save up that much money?” Katzeff continues:

“Deciding how to invest is one step. You’ll probably invest in individual securities or mutual funds, especially inside a 401(k) account or IRA. Deciding how much to invest can be just as challenging.

“Aon Hewitt says you need to kick in 17% of your annual income, on average, starting at age 25 to achieve that retirement planning goal.

“That’s how much you need to stay on track.

“Of course, if your lifestyle is lavish or your expenses exceed your expectations for such things as health care costs, then you’ll need more.

“The typical 35-year-old who earns $30,000 to $60,000 will need 11 times his or her final salary. But if he already earns $120,000, he’ll need 12.5 times his final salary.

“That’s because Social Security will cover a smaller portion of the wealthier person’s retirement income needs.

“Aon Hewitt defines adequate savings as the amount you need to maintain your pre-retirement standard of living for an average life expectancy during retirement.

“What if you have not been saving 17% annually since age 25? If you start from scratch at age 35, your average annual savings must be at least 25% of your salary.

“If you don’t start until age 45, you must sock away a whopping 40% of your salary each year.

“For every five years you delay saving anything after age 25, you must boost the portion of your pay that you set aside by 4% to 5%.

“On the other hand, if you delay retirement to age 67 from 65, the average share of your pay that you need to invest annually drops to 14% from 17%.

“Aon Hewitt’s projection assumes that 5 percentage points of the basic 17% annual savings amount comes from a company matching or some other form of employer contribution.

Fidelity Investments has now revised its comparable rule of thumb, lifting its retirement age of 67 salary-multiple to 10 from its previous guideline of eight.”