? You Need Less for Retirement Than Previously Thought

23 Apr ? You Need Less for Retirement Than Previously Thought

The conventional rule of thumb for retirement savings has been that you’ll need annual income equal to 80% of your current gross income, assuming that you can survive on your current level of income. So, for an individual earning $50,000 per year, conventional wisdom was that he would need $40,000 per year of retirement. Well, now the Financial Planning Association has restated the suggested method for determining adequate retirement income.

The FPA, in its recent report, suggests that individuals should give themselves credit for every dollar they save. For instance, if the $50,000 earner saves 10% of her salary, she is actually living on $45,000 per year. Therefore, according to the report, she needs $36,000 per year in retirement.

The shift in thinking seems obvious, but the real challenge for the working middle class is saving any money at all. According to a recent survey, 70% of working Americans plan to continue to work full- or part-time for pay following retirement from their main job. In many cases, insurmountable debt is the reason for the need to continue work. Massive individual debt retards one’s ability to save, and when it comes to saving for retirement, earlier is better than later. A 45 year old with no savings will need to save twice as much as a 25 year old to make up for his late start.

This is why bankruptcy is not a cure. Like a hammer, it is but one tool needed to repair financial hardship. If you are considering bankruptcy, discuss with your attorney, CPA and financial planner an overall strategy that also decreases expenses while increasing savings and income.

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Chip Parker is the managing partner of Parker & DuFresne, P.A., where he represents Northeast Florida businesses and consumers facing bankruptcy, and homeowners facing foreclosure. His firm files more homeowners in the Mortgage Modification Mediation Program than any other law firm in Northeast Florida. Parker is the recipient of Jacksonville Area Legal Aid's prestigious Award for Outstanding Pro Bono Service. Mr. Parker is an active member of the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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