Are You Guessing About Your Retirement Savings?

There are some things it’s okay to make a “ballpark” guess about. Things like, how much salt to put in a recipe, the time it takes to find a parking space, or how many steps you took yesterday are acceptable guesstimates. Retirement savings is not an area to simply make your best guess. However, according to a new report, the most common way for many people to estimate what they’ll need in retirement is to just guess.

A recent study found that about 40 percent of adults enrolled in retirement plans are simply guessing how much money they’ll need in retirement. This is particularly concerning because these are retirement plan participants or people who are more engaged in retirement planning because they are actively saving for it. Yet they are just guessing how much income they’ll need during their golden years. If people who are concerned about retirement savings enough to participate in a plan are just guessing, what does that say about people who aren’t enrolled in plans?

The report also found that when the participants were asked for their “best guess” of what they’d need in retirement savings, it fell way short of most expert suggestions. The average “best guess” was just $498,000. Meanwhile, most experts advise saving between $1 million and $2 million for retirement. That’s quite a big difference. It shows that “ballpark” guessing on retirement savings is not an optimal strategy.

Do One Thing: Never just guess your retirement savings. Instead, use a retirement calculator or talk to a financial advisor.

-Chris O’Shea for Savvy Money