About half of households age 55 and above have no retirement savings and are not participating in any retirement planning such as 401k, IRA, Roth IRA. (Source:  GAO)

                    Image Credit: GAO

“For the 59 percent of households age 55 -64 with some retirement savings, we estimate that the median amount saved is about $104,000, which is equivalent to an insured, inflation-protected annuity of $310 per month for a 60-year-old”, according to GAO (Government Accountability Office) report.

Retirement pictures are even worse for the Millennials. Right retirement planning is the only tool that will help you to reach  how much money do you need to retire.

1.How Much Money To Retire:

A rule of thumb is that one should have at least 70% pre-retirement income at the retirement to have comfortable life after retirement.

Another rule of thumb is 10 times of your per-retirement income will make your  after retirement life stress-free. According to the retirement plan provider Fidelity Investment, a person should aim to accumulate 10 times of his final salary to be retirement ready.3

However, these are only rules and offer you a rough estimate how much money do you need to retire oryou should have in your retirement account. Real planning is quite different and depends on one net worth at the time of retirement.

You can check your expected income at retirement or how much to save for retirement or how much should i have in retirement at this  retirement savings calculator.

2.Increase Contribution in retirement planning or Select the Right Fund

Personal finance expert most of the time suggests increase in contribution for retirement planning. But increase in contribution does not come without cost. Sometimes a person does not even have the ability to increase contribution because of other needs.  This is a simple and easy idea but comes with lots of sacrifice or tradeoff.

Best idea is to invest in highest earning funds with subject to risk tolerance and reshuffle your portfolio every year to reach how much money do you need to retire.

Let me explain you why right selection of fund is more important in the long run than increase in contribution to the portfolio.


How much money do you need to retire: Contribution VS Retrurn
Retirement planning Contribution VS Retrurn

In the above table, we considered 2 retirement planning pictures. Left table assume Sam, an Employee, invested $10000   each year for the 30 year and return on portfolio is 9% over time.

In Right table, Ryan, another employee, also starts his retirement planning with $10,000 first year. As he is more concerned to increase his net portfolio worth and wants a stress free life after retirement, he contributed extra $400 each year for the next 29 years.

We assumed both employee would go to the retirement after 30 year of service.

Over the time, Sam contributed $50,000 at the end of year 5 and total accumulated asset to his retirement plan is $65,000.

Ryan contributed $ 54000 over the first 5-year period and his total worth is $66123. Even though his net worth is $1123 more than Sam. However, he contributed $4000 more in the last 4 years and gained only $1123. His net loss is (4000-1123) =$2877 compare to Sam.

Let look at the longer time horizon. At the end of year 10, 20 and 25, Sam contributed to his retirement plan $100,000, $200,000 and $250,000 and his net worth are $165,602, $ 557,645, and $923,239 consecutively.

Again at the end of Year 10, 20, 25, Ryan contributed to his retirement planning are $118000, 276000 and $370000 and his accumulated asset in retirement planning are $171,170, $567,024 and $910,630.

Ryan new worth is still higher at the end of year 10, and 20. However, Sam net worth is higher at the end of 25 years than Ryan. Even though during this 25-year period Ryan contributed almost 50 % more asset to his retirement planning.

At the end of 30 years, Sam will contribute to retirement planning total $300,000 and his net worth would be $   1,485,752.

On the other hand, Ryan will also go to retirement after 30 years of service. Ryan total contribution during this period to his retirement planning is $474,000 and his net worth would be $ 1,404,862.

His net worth is ($80,890.09) less than the Sam after 30 years of contribution to his retirement planning though he contributed 58% ($174,000) more than the Sam over the 30 years’ period.

This seems to be terrible to have less money in retirement account with contributing more than 58% money over the time. Unfortunately, this happens to the most of the folks who contribute to the retirement planning because of the lack of proper money management knowledge.

3.Retirement savings strategies- Aggressive, Moderate or risk averse:

Investment strategy for 401k, Roth IRA and traditional IRA can be Aggressive, Moderate or risk averse based on Growth stocks, Value stock, bond, annuity.

Investment strategy also depends on  how much money do you need to retire  and risk tolerance level.

1.Aggressive Retirement savings

Putting all the money to the growth stock is considered as aggressive retirement savings strategy. This strategy comes with high risk and reward. This strategy may be good for investors who are in their early 20’s or below 30’s.

Again this strategy also depends on lot of other factors like retirement age, net worth and other savings account.

2.Moderate Retirement savings

Moderate strategy is the mix of the both growth and value stocks with annuity. This strategy is good for someone is above 30 and below 50. Again there are lot of other factors should be considered before telling a strategy is moderate.

3. Risk Averse Retirement savings

Risk averse retirement planning is investors put his money in annuity or treasury or savings account. This kind of investment has very little risk and reward is also small relative to aggressive strategy. Some people consider investment in blue chips dividend stocks is also risk averse.

4.401k, Roth IRA, Traditional IRA -which retirement option is for me:

401k, Roth IRA, IRA are 3 retirement plans with different features. 401k is most popular retirement planning which is sponsored by Employer. Roth IRA has certain kind of tax advantage and subject to restriction of income.

IRA is another retirement plan and employee use brokerage account to choose his investment from wide variety of investment instruments including mutual fund, Stocks, indexes etc.

A rule of thumb  how much money do you need to retire is first employee should invest in 401k up to the company match, then invest in ROTH IRA up to the maximum amount ($5500 for 2016-17) allowed and if employee still has some money to invest max out your 401k ($18000 for 2016-17).


5. Saving for Retirement: Contribution VS Total Worth

Start your retirement planning as early as possible. Best is to start from early 20s and continue until you go to retirement. One of the key advantage of early saving for retirement  is that you can start early savings and will get full advantage of compounding rate.

Another key advantage is  it is easy to reach how much money do you need to retire goal because of long time frame and investors more risk tolerance capability. Compounding rate effect on portfolio is magic in the long run.

Retirement Planning : Contribution VS worth
How Much Money Do You Need To Retire : Contribution VS worth

3 hypothetical retirement pictures have been analyzed in this chart and assumed that retirement contribution grew at 7% rate over the time. Every Employee contributed $10000 each year and all the 3 employees went to retirement recently.

Scenario A: Scott, a male, joined the workforce at his 20s and started to contribute $10000 each year to his retirement fund until he reached 40. After 40, he lost interest to retirement fund and stopped contribute to retirement fund.

He went to retirement at 65 and did not contribute single cent after 40s. His total contribution to the retirement was $200000 and his total worth at the retirement fund is $2,380,753 after retirement.

Scenario B: Zara, a woman, joined the workforce at 25 and contributed to his retirement plan from the beginning. She contributed $10000 each year until she reached 40.

Zara also went to retirement at the age of 65. Her total contribution to the retirement fund was $150,000. She is now having $1,459,331 in her retirement account.

Scenario C:  Robin, a male, joined workforce at the age of 30 and he did not begin contribute to retirement planning until he reached 35. He also contributed $10000 each year until he went to retirement at the age of 65.

Robin total contribution to the retirement planning was $300000.  His total worth is $1,029,623.

Scott, Zara and Robin contribution to their retirement planning were $200,000, $150,000, $300,000 and their net worth are $2,380,753, $1,459,331, $1,029,623 consecutively.

Even though Robin contribution was double of Zara and 33% more than Scott, his net worth is least among the 3 People. Eventually Robin net worth is 67% less than Scott and 30% less than Zara. This is the power compound return over time.

6.Selection of Retirement fund:

Most of the retirement funds depend on mutual funds. Some people who has traditional IRA account can buy other investment products like index, ETF.

Some folks go to the easy way by selecting target funds based on their needs and retirement schedule. Target date fund are tripled in volume after 2008. These funds performance are terrible and better to stay away from target funds.

According to a Forbes Articles, Average return on target fund are 2% in 2015, whereas Dow Jones Index   average return was 7.75%(1921-2015) from without adjusted dividend. Another major broad market indicator is S&P 500 average return was 8.92% (1950 t0 2015) without adjusting the dividend.

3 criteria every investor should look before any retirement fund selection:

  1. Return/ Performance
  2. Risk
  3. Fund cost

A good open source to look at Mutual fund performance are Morning Star, the Street, Kiplinger. Some of top performing mutual fund for 2016 are:

Fund Name


Matthews Emerging Asia Investor MEASX
DFA Japanese Small Co Inst DFJSX
Vanguard Wellesley Income Fund (VWINX)
Vanguard Cons Stap Idx Adm VCSAX
T Rowe Price Japan PRJPX
Integrity Dividend Harvest A IDIVX
AQR US Defensive Equity N AUENX
Vanguard High Div Yield Index Inv VHDYX
Vanguard Mega Cap Value Index I VMVLX
SEI Inst Inv Tr-Tax Mgd Volty A TMMAX
RMB Mendon Financial Services A RMBKX
Copley COPLX
Fidelity Select Healthcare Portfolio (FSPHX)
American Century Utilities Inv BULIX
Vanguard Value Index Inv VIVAX
Bridgeway Blue Chip 35 Index Fund BRLIX
Hennessy Japan Fund Investor HJPNX
ICON Information Technology A ICTTX
Fidelity Select Insurance FSPCX
Fidelity 100 Index FD FOHIX


7.Know the Cost  or Fee of the fund you Selected for retirement planning:

Every investor should consider the  expense of mutual funds, index, ETF before even think for the investment. Though it seems fund expense is very little portion to the retirement account, in the long run fund expense can be big headache for the investors and will impact your retirement goal and expected earning from  retirement account.

For example, .05% expense VS .1% expense would be big cost saving in the entire span of retirement plan.

8.Fund Expense VS Return on Investment:

Both are important. Primary target for retirement plan is to maximize your net worth, so one can retire comfortably.

For example, a fund return is 8% and overall expense is 1%, so net return is 7%.  And fund B has return 7.5 % and expense is .4%.  Fund B return on asset would be 7.1%

And fund C has 9 % return and fund expense is 2% and net return is 7%.

In this case, fund B would be the best fund selection for the retirement plan.

9.Late Retirement Planning Strategy:

If you are late in your retirement planning, let say you are above 35 or close to 40, Best strategy would be go with moderate strategy. In other words, go with the portfolio mix of Stocks and annuity. Your fund should have some value stocks as well as growth stocks. Dividend stocks could be a good pick in this category.

Complete growth stocks based strategy would be little bit aggressive because of your age.  Do not go for low cap stock as these stock is more volatile in nature.

Again Selecting annuity based strategy would be risk averse as you do not have anything in your retirement plan and with risk averse strategy would not be able to boost your retirement as expected.


  1. http://www.gao.gov/assets/680/670153.pdf


  1. http://www.cnbc.com/2016/09/12/heres-how-much-the-average-american-family-has-saved-for-retirement.html
  2. http://tradingninvestment.com/stock-market-historical-returns/
  3. http://www.epi.org/publication/retirement-in-america/
  4. http://www.forbes.com/sites/abrambrown/2013/01/29/a-guide-to-jumpstarting-a-retirement-plan-in-your-20s/2/
  5. http://www.kiplinger.com/slideshow/investing/T041-S003-best-mutual-funds-for-your-retirement-savings/index.html
  6. http://tradingninvestment.com/sp-500-returns
  7. https://www.thestreet.com/stock-market-news/10571219/top-rated-mutual-funds/top-rated-mutual-funds.html
  8. http://beta.morningstar.com/funds.html