How to Keep Your Retirement Savings
Your savings rate depends on your age and the current size of your nest egg.
useful guideline to maintaining your current lifestyle in retirement is to replace 75% of your preretirement income—50% from your investments and 25% from Social Security benefits and other sources. Because your financial situation is unique, you may need more or possibly less income in retirement. FuturePathSM, a new financial resource discussed in the main feature, can help you develop a clearer understanding of how your current savings and financial position will translate into your income in retirement.
DEFINE YOUR SAVINGS GOAL
These sliders show the percentage of salary you should be saving, in combination with contributions from your employer, to maintain your current lifestyle in retirement. The top slider is your age. The bottom slider represents how much you've saved as a multiple of your current annual salary. Moving both handles to the correct spot on their respective sliders gives you a target of how much you should be saving for retirement.
Source: T. Rowe Price.
Assumptions: Your salary increases 3% annually; Social Security and other sources (like wages and a pension) make up 25% of your preretirement salary; you earn 7% on your investments in a tax-deferred account; and you retire at age 65. When you retire, the chart assumes your initial withdrawal amount will be 4% of your balance at that time.
RETIREMENT MILESTONES Whether you're retired or nearing retirement, here are some age-related milestones to keep in mind when planning your income strategy.
You can begin withdrawing from your Traditional IRA after age 59½ without incurring the 10% early withdrawal penalty, although income taxes still apply to any earnings and deductible contributions. In most cases, you also may be able to take a distribution from your employer-sponsored plan without incurring the 10% penalty if you separate from service in the year you reach age 55 or later. For Roth IRAs, contributions may be withdrawn at any time, tax-free and penalty-free. Earnings on a Roth IRA may be withdrawn tax-free and penalty-free at age 59½, as long as you've held the account for at least five years.
Although you can begin taking a reduced benefit from age 62 until your full retirement age (FRA), you can increase your eventual Social Security benefit for each year you delay receiving it—up to age 70. Keep in mind that if you plan to work part time or full time while collecting Social Security prior to your FRA, your salary may reduce your monthly benefits, and an adjustment will be made at your FRA to restore any lost benefits.
You must begin taking required minimum distributions (RMDs) from Traditional IRAs by April 1 of the year after you turn age 70½. Special rules apply to the timing of RMDs from employer-sponsored retirement plans. A tax penalty of 50% applies to RMD amounts that are not distributed. Roth IRAs do not have RMDs; however, Roth contributions to an employer-sponsored retirement plan are subject to RMDs.