At the core of the typical retirement plan is the goal of building assets that will provide income, alongside Social Security and other sources, during your senior years. But how much do you need to save by age 65 or 70? And what does that mean for your present saving habits?
The math gets complicated fast, because there are so many variables. How much to save depends on things like your future wage growth, inflation, longevity, future spending needs, what year you hope to retire, and whether you have a defined pension in addition to Social Security.
Many families will find it helpful to consult a financial planner who is paid by client fees (not paid by a financial company to promote certain products). A planner would help with setting a savings target and with other steps in retirement planning.
But online calculators can also offer some useful guidance.
One free tool that blends ease-of-use with relatively sophisticated results is T. Rowe Price's retirement income calculator. Answer a few questions, and soon you'll see a chart of how much you're on track to save now, and how much you might need to boost that amount to have a 70 percent chance of hitting a prudent target by retirement. The tool lets you test what happens when you shift a few parameters (like retirement age).
An alternative online tool, worth noting because it's considered state-of-the-art by some finance experts, crunches the numbers to fit a theory called "consumption smoothing." This is the idea that your goal is to maximize your quality of life (the "consumption" part) over your whole lifetime (the "smoothing" part).
The service, called Economic Security Planner, often gives very different advice from the typical online calculator. And it can be tailored specifically to one's situation – such as factoring in when you'll stop helping a child through college and start putting some extra money toward your own retirement. The software concept was crafted by financial economist Laurence Kotlikoff of Boston University.
Whether you turn to a professional or to some software designed by professionals for guidance, don't be frozen by the complexity of the decisions. Doing something is much better in this arena than doing nothing, finance experts say. So set a goal, keep saving, and you can revise or improve your plans as you go.