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Preparing for the Golden Years
Financial Planning for Retirement
By Megan L. Fowler
The drawbacks of an IRA, however, are that choosing where to open one can be confusing and expensive (some places charge high fees, some don't). You either pick your own investments (from a huge array of choices out there), or you pay someone else to do it for you – do it well or do it poorly. "The benefits of IRAs are that you get to direct your own investments," Stewart says. "You can diversify your investments. You can choose where to put your IRA account, thereby (hopefully) choosing better investment choices."
The amount of money one should save for retirement really depends on the person. "If you are contributing to a 401(k) plan, you should put away the amount that will get you the maximum employer contribution match," says Stewart. "We are talking about 'free money' here." Otherwise, the target amount is 10 percent to 15 percent of your gross income (before withholdings). "Get used to saving this much, and you will have a much better chance of being rich down the road," she says.
Here is Stewart's quick (and by no means thorough) method to calculate how much to have saved by age 65:
- Figure out how much money you need to live on if you were age 65 today. Be sure to include the money you need to pay income taxes. (This step is the most difficult for people to do realistically.)
- Take this amount from step one and do your algebra: This amount is X percent of what number? That "what number" is the amount – in today's dollars – you should havein savings when you retire at age 65.
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