# Monitoring Your Retirement Readiness

**by Mitchell J. Smilowitz, CPA**

I’d like to share with you a recent *Wall Street Journal *article (*How to Monitor Your Retirement Readiness*, June 28, 2017) that describes several methods for making a back-of-the-envelope calculation about whether you are on track with your retirement savings.

- The
**80% Rule**assumes that you will spend 80% of your pre-retirement income once you retire. According to this formula, if your household income is $100,000, you will need $80,000 in retirement income. Subtract the amount of Social Security you expect to receive (let’s assume $35,000) from the 80% number. You will need to generate $45,000/year from your investments. To estimate how much you will need in retirement, the WSJ recommends multiplying this number ($45,000) by 25. By this calculation, your household would need $1.125 million when you retire. - The
**“X” Times Salary**method estimates your progress to retirement based on your age and the amount you have in your retirement account. Assume your retirement age is 67. At 30 your retirement account should equal your income. For example, if your salary is $35,000 at age 30, your retirement savings also should be $35,000. At 40, you should have three times your annual income; six times income at 50; eight times at 60; and 10 times at 67. This approach is designed to replace 45% of preretirement income (with Social Security covering the remainder). - The
**Safe Savings Rate**method approximates how much you should save in order to replace 50% of your preretirement income (with Social Security again covering the remainder). The method is based on a moderately aggressive portfolio (60% stocks/40% bonds) and calls for a person expecting to work 40 years, such as someone in their 20s, to save 8.8% a year in a retirement account. The savings rate required with 30 years left until retirement jumps dramatically to 16.6% per year. This demonstrates the importance of starting early in order to receive the greatest possible benefit from compound interest. (For a definition of compounding, see the text in the right column.)

The question is: What action should you take once you have these estimates? Here’s where the JRB can assist. We will work with you to understand the numbers so you can make wise decisions regarding your financial well-being.

Mid-year is a good time to evaluate your progress towards your financial goals. After reviewing your 2^{nd} quarter statement, give us a call at 888-JRB-FREE (888-572-3733) or send an email to staff@jrbcj.org to schedule your financial review session.