General Retirement Savings Guidelines, And Claiming Social Security Benefits

Although this blog is about properly planning for retirement (not taking shortcuts), there will always be those who want some instant gratification. This post is for you! But please remember, the following information is very general, and each persons unique situation may require significant changes. There is no substitute for a well thought out retirement plan.

That said, here are some general guidelines for how much you should have saved using age milestones:

Age 35 - 2x your annual income
Age 40 - 3x your annual income
Age 45 - 4x your annual income
Age 55 - 7x your annual income
Age 60 - 8x your annual income
Age 67 - 10x your annual income

Even if you use these suggestions as a goal, you still need to have a plan for how to achieve that goal (sorry, I couldn't resist). Knowing how much you want/need to save, doesn't help you to actually achieve that goal. It's a step in the right direction, but make sure that you follow up with specific actions that will help you to get where you want to go. Know, and track, your expenses (all of them!) vs. cash flow to help determine how much you are actually able to save. Do this regularly. Also track your yearly progress in achieving your goals, and make adjustments accordingly.

Ideally, you should retire based on your assets, and needs, not a particular age.

In trying to achieve a certain savings amount, keep in mind that taxes will have a significant impact on the amount of savings that you can actually spend. You will pay taxes on any withdrawals from a 401K/IRA plan. Obviously, your tax status and total income in the year of any withdrawals will determine the amount of tax that you will need to pay (another good reason to use a retirement planning tool that accounts for taxes. Oops, I did it again), but don't assume that if you have $500,000 in a 401K that you will be able to spend $500,000. It will be less. You will also likely be taxed on at least part of your Social Security income (85% is taxable depending on your total income for each year).

Speaking of Social Security, at some point you will need to decide when to start claiming your benefits. This is an important part of any retirement plan. In short, you will have a larger benefit for every year that you wait to claim between ages 62 and 70. Age 67 is currently considered the "full" retirement age, when you would receive 100% of your Social Security benefit, but you can also receive additional amounts ("credits") for every year that you wait to claim between ages 67 and 70. Here's a quick synopsis of what happens by age with Social Security:

Claim at age 62 - receive 30% less than your "full" benefit
Claim at age 63 - receive 25% less than your "full" benefit
Claim at age 64 - receive 20% less than your "full" benefit
Claim at age 65 - receive 13.33% less than your "full" benefit
Claim at age 66 - receive 6.67% less than your "full" benefit
Claim at age 67 - receive 100% of your "full" benefit
Claim at age 68 - receive 8% more than your "full" benefit
Claim at age 69 - receive 16% more than your "full" benefit
Claim at age 70 - receive 24% more than your "full" benefit

If you decide to claim your benefits at age 62 (accepting a lower benefit), you will break even vs. claiming at age 67 (receiving your full benefit) at around age 80 - 81. If you don't need to rely on your benefits to pay expenses, and you expect to live past age 80, you will generally come out ahead by waiting to claim your benefits until at least age 67. If you are married, there are varying strategies for when it would be best for you, and your spouse, to each claim your benefits.

All the details about Social Security benefits, and how they work, can be found at .They also have several calculators that may help you to decide when it will be most beneficial for you (and/or your spouse) to  start claiming benefits. Also, each year, you should review your annual Social Security statement showing your potential benefits, to be sure that it contains accurate information about your earnings.

There is no substitute for a comprehensive retirement plan to help guide you through all of the potential variables, but the information above may at least peak your interest in creating a real plan of your own. Looking at generalities may be quick, but they're frequently inaccurate when individual circumstances are considered. You only get to retire once, so don't use a quick fix to solve a long term problem, make sure that you get it right the first time!

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