Is there a rule of thumb that a monthly pension payment should equal a certain amount of dollars of savings? We hear that we need X dollars for retirement, but with a pension, what might that equate to? Some of us will have pensions from previous employers and wonder what it means in terms of the amount we need to save. (For example, does $1,000 in a monthly pension = $125,000 in savings?) What are good numbers to use in planning? Thank you.
Kathie, it really all boils down to how much of your pre-retirement income you’re trying to replace. That’s what you should focus on. Recent research has shown that spending in retirement isn’t linear as previously thought. You were often told you should plan on spending 70 to 80% of your pre-retirement income in retirement. In fact, spending usually tails off after the kids go to college and leave the house and, eventually, you stop working full time. Then life gets really expensive when you hit uber old age and healthcare expenses ramp up.
That said, on average, aiming for that 80% replacement rate is probably a pretty good move. You need to head to a retirement calculator that allows you to input how much you’re expecting from Social Security and your pension as well as how much you’ve saved. The AARP’s retirement calculator – which you’ll find here – will let you do just that. It’ll run the numbers and help you figure out how much more you need to save to meet your goals.