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January 25, 2006

How much should you save?

An old rule of thumb says that workers should save 10 percent of their pretax income for your retirement. But Dr. Mike Walden says the rule may need to be updated.

“This rate was developed in the days when most people had what are called defined benefit plans from their employer,” says Walden, a professor with the Department of Agricultural and Resource Economics in N.C. State University’s College of Agriculture and Life Sciences.

“These are much more generous retirement plans, but they are very rare now. So you probably need to pump that 10 percent up to about 15 percent."

“But remember what to include when figuring if you do have the 15 percent: not only money that you take out of your paycheck but you also want to include the equity increases in your home, your stock holdings and your other assets,” Walden notes.

“A very good thing to do is to try to take the savings rate that you are doing now and project what you will have when you retire see if this amount is enough to produce an annual value which when you add Social Security you can live on,” Walden advises. “If not, then you need to save more.”

Posted by deeshore at January 25, 2006 08:00 AM