Here’s the best New Year’s resolution I can offer for 2013: Run your finances through an online retirement-planning program. Buckle your seatbelt before clicking on “calculate results.”
Otherwise, you might fall off your chair.
The results will show how much retirement income you’ll have per month, if you keep earning and saving (or not saving!) at your current pace. Almost certainly, you won’t have nearly enough to pay your future bills.
The numbers will shock you, but that’s reality — no getting around it. You’ll have to save more and spend less, to avoid depending mostly on Social Security in your older age. Social Security is a solid safety net, but you won’t be living very well.
You have much to gain in giving yourself this painful retirement-savings test. Surveys by the Employee Benefit Research Institute consistently show that people who use the calculators save more money than people who don’t. They might not save as much as the calculators recommend, but at least they have a goal. They start moving toward it as fast as they can.
Three easy calculators to use are Fidelity Investments’ Retirement Quick Check, T. Rowe Price’s Retirement Income Calculator and the simplest of all, Vanguard’s Retirement Income Calculator.
I put the same case through each of them. They showed different results, in dollar terms, but they’re in the same ballpark. Fidelity and T. Rowe Price also give you odds on how long your money will last, if you retire and continue your current lifestyle.
All the calculators let you change your assumptions (retirement age, the percentage of income you save annually, and the expected return on your investments), to see what you need to do to bring a decent retirement within reach. Tip: Keep the return on investments at 5 percent, for a balanced stock/bond portfolio.
Your leverage will come from saving more, which you can do as you get raises and promotions, and working past age 65 (if that’s possible).
So give yourself the gift of reality in 2013 by putting yourself through a couple of the calculators. It’s eye-opening. If it drives you to save more money, you’ll be changing your future, starting now.