How Much Should You Save for Retirement at Age 45?

If you don't save enough money for your retirement, then you may be forced to work longer than you planned. The earlier you start saving money for your retirement, the better. But, if you're 45 years old and you still aren't sure how much money you should be saving, you need to spend some time figuring this out.

Current Savings

The first thing you should take stock of is how much money you have right now. Your current savings will determine how much money you will need in the future. Your current savings may include current 401(k) plan balances, personal savings in a savings account and bank certificates of deposit. You might also want to consider items that you can liquidate and add to your savings. This would include things such as a second car that you no longer need, a second home or a variety of items you have around the house that you intend to sell. While this isn't savings, per se, you can count them once you sell them.

Financial Goals

Determine your financial goals. If you make $50,000 a year and you want to make at least that much in retirement, then you have something to work toward. Without a financial goal, you'll never know how much you should be saving. Financial goals are very personal and cannot be decided by a financial planner, regardless of his expertise. Your goals need to be determined by you, according to the kind of life you want to live when you retire from your career.

Life Expectancy

You'll need to estimate your life expectancy. The IRS has life expectancy tables on its website that can tell you how long you can expect to live based on your age. Alternatively, you can contact a life insurance company. If you approach a company asking for a quote for an immediate annuity, the insurer can estimate your life expectancy for you.

Investment Return

If you make $50,000 annually and you think you can earn 8 percent per year, then you can determine how much you need to save. In this example, you would need to save a little over $1,697 per month, assuming no rate of inflation and no existing savings. This amount of money will give you an income of $50,000 after 20 years. That's a lot of money to save every month. If your investment return were higher, say 10 percent, you'd need only $1,310 per month. If this savings rate is unsustainable for you, you'll need to extend the number of years you plan on saving.

Inflation Rate

In addition to your savings rate, you'll need to factor in inflation. Inflation reduces the value of your savings. Because of this, an additional amount of money must be contributed to your savings each year to offset inflation. Inflation rates are difficult to predict since the Federal Reserve impacts inflation through setting monetary policy in the United States. To give you an idea of historical rates, from 1913 through 2010, the average annual inflation rate was just over 20 percent. However, from 1980 through 2010, the average annual inflation rate was 5.5 percent. Keep in mind that historical rates of inflation are not predictive of future inflation.