Employee FAQs: Have I saved enough to retire?

Have you saved enough in your Lockheed Martin 401k to retire? If you are getting close to retirement, than that’s probably a question you’ve asked yourself a few times. So how do you know? Let’s take a look.

How much will I need?

First, you’ll want to determine how much income you’ll need when you are in retirement. A general rule of thumb is you’ll need about 70-80% of your current income in retirement. That estimate can be way off if you’re a high earning employee and are pretty frugal.

It can go the other way as well, so if you’re a spender and don’t save a lot each month, you might want to shoot for 100% of your current income. Also, make sure you account for the taxes you’ll have to pay when you pull out money out of your retirement accounts.

For our example, let’s use a current income of $200,000. So in retirement, we’ll plan on living off of $140,000 (80% of $250,000). Let’s call that your annual income need.

Pensions and Social Security

After you know how much you’ll need each year (or month), subtract any income you’ll have from your Lockheed pension and/or social security. If you’re not sure how much you’ll get in retirement, you can log on to the LM people website and find the pension estimator under Pay and Benefits.

To estimate your social security, you can log on to the Social Security Administration website and get your most recent statement (they used to send these out before your birthday each year, but in order to cut costs for the administration, you have to find it online).

Once you have that info, subtract it from your annual income need above. So in our example, let’s say you have $6,000 a month from social security and pension, or $72,000 a year.

$140,000 minus $72,000 a year comes out to $68,000. Let’s call that your net income need.

The 25x Rule

A common retirement planning tool is the 25x rule. Basically, you take your net income need and multiply it by 25 to get the total amount of retirement assets you’ll need to make sure you’ll have enough to retire.

So in our example, if you need $72,000 each year, 25x that would be $1.7 million of retirement assets. You’ll use that chunk of money to withdraw from in retirement.

What if I don’t have enough?

Did the 25x rule scare you a bit? What should you do if you nest egg has come up a little short? You have a few options.

  • Check your expenses. How much will you really need? Will you have a paid for house? Can you live off less and/or cut some of your expenses?
  • Work a little longer. Working a few more years could add a nice chunk of change to your retirement portfolio. Maxing out your 401k, getting that great Lockheed Martin 401k match and adding in your catch-contribution can help your retirement asset balances. Need to save more? Check out this recent article.
  • Work part time. Can you do any consulting work? Any additional income you have coming in can lower the gross income need we discussed above.
  • Get help. A financial professional can help you make sure you’re not missing anything. It’s always a good idea to get a second pair of eyes on a decision this important.

Now that you’ve done the math, what changes do you need to make? Do you have enough in your accounts to retire earlier than expected? That’s not a bad problem to have.

If I can help you sort out your retirement picture – feel free to fill out the form below.

The opinions voiced in this material are for general information only. They are not intended to provide specific advice or recommendations for any individual, nor intended as tax advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.