Lynn O'Shaughnessy

How much do I need to save for retirement?

Some variation of these words has been uttered by millions of Americans. People keep asking the question because the answers have been about as satisfying as an empty bag of potato chips. Investors have heard it all. Some experts advise people to save 10 percent of their paychecks, while even bigger naggers insist that older procrastinators need to set aside 15 percent or 20 percent or more. Others suggest that people save at least enough to capture a match in their 401(k) retirement plans. Unfortunately, all this advice is overly generic and hardly applies to everyone.

A 40-year-old who has been faithfully saving since her days as a baby sitter, for instance, isn't going to need to save as aggressively as someone who keeps QVC on her speed dial. A person who drives a 10-year-old Volvo and lives in a two-bedroom bungalow isn't going to require as much in retirement as someone who tools around in late-model luxury cars and lives in a five-bedroom house that generates property taxes that are almost as obscene as the utility bills.

It's all these variations from the norm that explain why a new study co-written by Roger Ibbotson, a professor at the Yale School of Management and one of the titans in the financial world, should be invaluable to many anxious retirement savers. Five researchers involved with the study developed savings guidelines for retirement that take into account a person's age, the amount that has been saved and his or her income. Individuals can use these guidelines to figure out how much they should be saving or whether they can relax and stop accumulating so many acorns. The study also provides targets on how much we should have stockpiled by the time we reach age 65.

In conducting the study, researchers focused on three areas:

- The cash flow needed in retirement.

- The savings needed to generate this cash flow.

- The annual savings necessary to build up the nest egg that, along with Social Security, will pay the retirement bills.

In developing their methodology, Ibbotson and the others developed an approach that others have failed to use. To calculate realistic savings rates, they didn't peg their numbers on a person's gross income - that is, what an individual takes home every year before taxes or any other deductions eat it up. Instead, they keyed in on what they called the net pre-retirement income. They defined this as a person's gross income minus whatever money he or she plowed into a 401(k), individual retirement account or other retirement plans for the year.

Lynn O'Shaughnessy

Lynn O'Shaughnessy is the author of Retirement Bible.

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