Liz Pulliam Weston, at MSN Money, has a column regarding a new way to determine the magic number--that is, the amount one needs to have saved for retirement. Actually, this new method supposedly calculates the percentage of current pay that must be saved in order to reach one's retirement goals.
Umm--I hope NOT!
Because if this calculator is accurate, I'm in a lot of trouble.
I currently save 16% of my gross pay in my 401 K. My employer contributes 6% of my income into the same 401 K. So I thought I was doing pretty well with a total 22% contribution. But, NO! According to MSN, I need to contribute 37% to reach my goals.
That, of course, leads me to poke holes in this new calculation. My annual income is $73,500. The calculator asks me to choose either $60,000 or $80,000, neither figure particularly close to what I actually make. The calculation assumes I will need 80% of my net income in retirement and that I'd retire at age 65. It's nice that it uses a net figure rather than gross (a mistake a lot of other calculators make) but I've never thought I'd need my entire salary or even 80% of it when I finally leave work. Also, I plan to retire at 69, not 65. My house will have been paid off four years before I retire. I intend to use that additional savings for my last automobile purchase and my "retirement-gallivanting" fund. While long-term care insurance and additional health expenses may occur, I don't know that they would equal the $1400 per month I currently pay on my mortgage.
I fare better using MSN's calculator so that's where I'm looking, at least for the time being.