Most people do not know how much savings they will need for retirement. However, most people can benefit from saving, even if they start late in life. A 25 year old person in the workforce who saves $5,000 per year may be able to save $691,184 by age sixty assuming a seven percent interest rate. A fifty year old person who saves $5,000 per year may be able to save $125,645 by age sixty-five using the same assumptions. $5,000 per year or $416.67 is less than the average new car payment. However, according to a 2013 survey, many people have less than $1,000 saved towards retirement. This is a money problem.

What is it about the word retirement that causes so many to shy away? Some have used the word “retire” to state that they are going to bed for the evening. In baseball, the word “retired” is used sometimes to describe batters that a pitcher has gotten out. Is that what retirement means for many people? Going away, called out? Maybe we need another term to describe retirement. Maybe the term has negative connotations. Whatever the case, it is a stage in life that people spend an average of twenty years. How much money will it take to support your current lifestyle for twenty years? Do you need the equivalent of what you currently earn? Most experts tell us that we will need 60 to 80 percent of our current income to support our current lifestyle through retirement. This takes into account that most people’s expenses actually go down once they leave the workforce. Therefore, if you currently have an annual income of $40,000, you will need $24,000 to $32,000 per year to replicate your current lifestyle. Using simple math, you would need a lump sum of $480,000 to $640,000 saved for a twenty-year retirement. This does not take into account Social Security or potential earnings on investments during retirement, but it gives us a good place to start the conversation.

Using the savings statistics we first discussed, the person who saved $691,184 would seemingly have enough money to support a twenty year retirement without depending on Social Security. The person who started late and only saved $125,645 would need to earn an additional $17,718 to $25,718 per year to support a lifestyle equivalent to 60 to 80 percent of her pre-retirement income. So whether you are just starting your career or in the later stages, it will pay to save. If you want to learn more about saving for retirement or solving money problems, check out MIMoneyHealth.org. In addition, Michigan State University Extension offers a variety of money management programs throughout the state of Michigan.