When we're laying the groundwork for our retirement plans, many of us spend hours noodling on optimal asset allocations, withdrawal rates, and income-replacement rates.

But another metric tends to receive far less scrutiny even though it's a far bigger determinant of whether we can retire when and how we'd like to: how much of our income we're able to save while we're working.

I recently surveyed Morningstar.com users about their own savings rates. Posting in the Investing During Retirement forum of Morningstar.com's Discuss forums, I asked readers if they had stuck with the old rule of thumb and saved 10% of their salaries, or if they had nudged their own savings rates higher. I also asked them whether in hindsight their savings rate was too high, too low, or just about right?

Responses, not surprisingly, ran the gamut, and many posters noted that they hadn't saved a fixed percentage throughout their pre-retirement years. Rather, many readers said that they saved somewhat half-heartedly in their younger years, then kicked up their savings rate aggressively when they started to get "real" about retirement, often in their 40s and 50s. "I wish I had started saving more aggressively earlier on!"--or some variation of that statement--was a frequently echoed refrain. To read the complete thread or share your own retirement-savings rate, click here.

'I Have Been Making Up for Lost Time'Although some readers advocated for a flat savings rate, many posters noted that their savings rate trended up as they aged, no doubt the result of a confluence of factors, including higher absolute levels of income, which makes it easier to save, and a greater sense of urgency about retirement, which naturally increases as we age.

The savings pattern laid out by Keith999, who expects to embark on a financially secure retirement soon, will ring true for many investors. "In my 20s I spent, in my 30s I spent more, then in my 40s began saving about 6% of salary, early 50s about 12%, and the last 10 years I/we saved 20% of two salaries. The last 10 years probably represent over 50% of the total saved and indeed has put us over the top of what we need."

ColonelDan's savings rate moved up in stairstep fashion: "I managed to save/invest 5%-10% of my early meager military pay; 10%-15% of military pay in the latter half of those 24 years; 20%-25% of my regular civilian salary plus 100% 401(k) catch-up amount, 100% employer's 401(k) match, and 100% of all bonuses."

Cterry notes that increasing one's savings rate as retirement approaches can have the salutary effect of preparing a pre-retiree to live on a lower income during retirement. "The advantage to ramping up savings so much in the nine years before I retired was that I didn't have to worry about 'Some advisors recommend 90%-100% of current income for retirement--do I need that much?' because I already was living on 70% of my gross."

Playing catch-up is the name of the game for many pre-retirees. For FidlStix, running the numbers on in-retirement income needs was a wake-up call. "About eight years ago I did my first estimate of how much income I might need during retirement. That was a shocker. I was 10s of thousands [of dollars] behind where I needed to be at that point. Since then, I have been making up for lost time. I jumped my percentage of salary saved to 22% including a 5% company match. I also started a Roth IRA five years ago, contributing about 10% additional on average. My total saved this year will be about 38% counting the Roth."

'I Was Finally Able to Really Do Some Saving'Family matters also figured heavily into many posters' savings-rate patterns. Not surprisingly, many readers noted that helping to defray college costs for their children had put a strain on their savings, but with college over, they were able to sock much more away. Juris2 wrote, "I've saved a bit more since my kids ended college in 2003 when I started a supplemental retirement account (SRA). I'm currently putting about 25% per year in my retirement account and SRA combined, including employer contribution, as I approach retirement in two years. (Almost all savings accumulated beyond the RA and SRA were wiped out by college costs for my kids.)"

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How much did you save for retirement?

Most of us could always stand to put a few more bucks into our retirement accounts. After a decade of lackluster returns for stocks during the 2000s, you may well have a lot of catching up to do in saving for retirement, and even the raging bull market of the past three-and-a-half years hasn't brought major market averages back to their pre-financial crisis levels. Given that Social Security is under siege and company pensions are rapidly becoming a thing of the past, what you save for yourself is definitely the most reliable source of funds you can count on after you retire.

Yet there's an even bigger reason that now is the best time to start finding ways to funnel more money into tax-favored retirement accounts like 401(k) accounts and IRAs. With the looming fiscal cliff just months away, the incidental tax benefits that retirement accounts provide could get a whole lot more valuable.

The worst-case scenarioWithout government action, a whole bunch of bad things are about to happen to your taxes. Let's take a look at the three basic categories of higher taxes that you may face:

1. Higher taxes on ordinary income are coming.Without a tax law change, income tax brackets across the board are going to go up. Although most of the attention has focused on the impact on the rich of higher brackets, the changes could potentially affect anyone who pays tax.

At the beginning of 2013, current law provides for the lowest existing tax bracket of 10% to go away, reverting to 15%. That could add $870 to the tax bill of married couples with incomes roughly in the $20,000 to $70,000 range. And obviously, adding three percentage points to the current 25%, 28%, and 33% tax brackets would produce a big hit on higher-income taxpayers as well. Although both parties have talked about agreeing to the need to renew tax breaks on low- and middle-income taxpayers, it hasn't happened yet.

The more you put in a deductible IRA or 401(k), the less taxable income you'll have. With tax rates rising, the savings you'll get from contributing to a retirement account will also increase.

2. Higher taxes on investment income are coming.The elimination of tax breaks on dividend income and the rise in long-term capital gains rates, while investment focused, will be costly for many taxpayers. Right now, those in the 10% and 15% brackets pay nothing in tax on qualified dividends, but that will rise to 15% in 2013 with no changes to current law. Those in higher brackets will lose the 15% limitation and pay whatever their higher rate is, up to 39.6%. That will eliminate the current penalty that investors in non-qualified dividend payers, including mortgage REITs Annaly Capital (NYSE: NLY) and American Capital Agency (Nasdaq: AGNC) , have to pay -- but only by raising the rest of the playing field to match the higher rate.

For years, dividend stocks have attracted new capital. But the new rules will make it more important than ever to shelter dividend income inside a retirement account. In particular, on high-yielding stocks Frontier Communications (Nasdaq: FTR) and Windstream (Nasdaq: WIN) , which have yields of 8% to 10% and whose dividends are generally eligible for lower tax rates, you could end up paying more than two-and-a-half times as much in taxes as you do now in a regular account. In an IRA, by contrast, you'll save more of your hard-earned money and let it work harder for you during your career.

3. Excess taxes for high-income taxpayers are coming.In addition to old tax law coming back to bite taxpayers, new increases are also on their way. Medicare withholding will rise by 0.9% once wages rise above certain limits -- $200,000 for most singles and $250,000 for joint-filing taxpayers. Also, a 3.8% surtax on investment income will apply to high-income taxpayers, making it that much more important to get high-yielding dividend stocks under cover of a tax-favored retirement account.

Get your money protectedTo reduce your taxable income and therefore your tax bill, IRA and 401(k) contributions are one of the most effective things you can do. The sooner you get money into those accounts, the better off you'll be -- and even if the fiscal cliff somehow gets fixed, you'll still have done a lot to make your retirement that much more secure.

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3 New Reasons to Beef Up Your Retirement Accounts

Dear Tax Talk, My husband and I are in our early to mid-70s. We have two children with special needs who are not self-sufficient. We have about $620,000 in a defined benefit plan, and we receive about $9,000 per month in pensions and Social Security, not including the defined benefit plan. The $9,000 will be reduced by about half when the first of us dies and will be about $3,000 when the remaining spouse dies.

We just moved to New York from California, where we sold a house that we bought for $300,000 in 1985. It sold for $2 million after closing costs. There was a $700,000 mortgage, leaving us with about $1.3 million. We know we have the $500,000 exclusion of gain, plus we put about $500,000 into remodels over the years, so our cost is $1.3 million. Our taxable gain will be $700,000, so we will be paying about $105,000 (15 percent) in federal taxes and $70,000 (10 percent) in California taxes. This leaves us with $1.1 million to buy a house in New York.

We want to buy an apartment that we will be happy in. We spend a lot of time at home and entertain a lot. If you can imagine, the apartments in Greenwich Village that we love are not very nice in the $1 million range. So our business manager suggested we put a small amount into a mortgage, so we can afford $1.3 million, a price at which we would be able to find something we like.

I am an actor, well thought of, and my husband is a playwright whose play is being done on Broadway this year with a major star, so he will probably make about $1 million before taxes. We have made very little over the past 10 years, but we love it here in New York and are doing well. But I am not making any money.

In addition to a house, my greatest concern is my kids. I think the apartment will be a good investment to leave for them, but also I feel we need second-to-die insurance and long-term care insurance. So I worry. Can you help? -- Margaret

Dear Margaret, The help to your question may very well reside in your question. Your business manager should be the person on top of planning for your children's future. If he can't do it, then he needs to find the right qualified professionals.

While second-to-die and long-term care insurance are great products, they're also best purchased at a younger age. These products also involve high commissions to the broker that sells them, obviously creating a conflict of interest in their recommendation. At this stage in your life, these products may not make economic sense for you or your dependent children.

If your husband is making up to $1 million this year from his play, you may want to consider additional contributions to the defined benefit plan. While an individual retirement account has an age limit for contributions, a defined benefit plan does not necessarily have to have an age limit.

With respect to the home sale, you have California taxes due on the sale. The same applies for New York and your husband's earnings. You may want to consider paying those taxes prior to the end of the year to make sure they're deductible. That is, anyone owing state income taxes should consider getting a prepayment in for the year to ensure the tax deduction.

Your CPA should prepare a tax projection to see what makes the most sense to pay to maximize your deductions and minimize any late-payment penalties. The projection should also be mindful of the alternative minimum tax. I hope this helps answer some of your concerns.

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Planning for retirement, special-needs children

Retirement! For many, the very word conjures up images of freedom an escape from the demands and drudgery of work; a chance to travel and pursue much neglected avocations; and the time to really enjoy the company of family and friends.

Retirement is supposed to be an exciting new stage of adventure and self-determination. Unfortunately, the reality is both different and much more complex.

In two groundbreaking studies, Ameriprise Financial, a major U.S. financial planning firm, found that retirement is not an end state but more of a series of separate and foreseeable stages through which people move. Understanding and planning for the challenges posed by this odyssey can improve the odds of having a successful journey. Here are the six stages:

Imagination

This stage occurs anywhere 6 to 15 years before the planned date of retirement. People begin to envision being retired even while they are busy with other priorities such a launching their children and paying down their mortgages.

Generally speaking, their outlook is optimistic and enthusiastic, even adventurous, as a picture of retirement begins to form in their minds.

Hesitation

In Ameriprises original study in 2005, this stage didnt exist. However, their 2010 study found that a new stage of worry and hesitation emerges 3 to 5 years before retirement, a consequence of the market meltdown during the global credit crisis.

With retirement approaching, people begin to worry about their preparedness and many begin more detailed planning, often with a financial advisor. The question will we have enough becomes paramount.

Anticipation

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The odyssey of retirement planning

When we're laying the groundwork for our retirement plans, many of us spend hours noodling on optimal asset allocations, withdrawal rates, and income-replacement rates.

But another metric tends to receive far less scrutiny even though it's a far bigger determinant of whether we can retire when and how we'd like to: how much of our income we're able to save while we're working.

I recently surveyed Morningstar.com users about their own savings rates. Posting in the Investing During Retirement forum of Morningstar.com's Discuss forums, I asked readers if they had stuck with the old rule of thumb and saved 10% of their salaries, or if they had nudged their own savings rates higher. I also asked them whether in hindsight their savings rate was too high, too low, or just about right?

Responses, not surprisingly, ran the gamut, and many posters noted that they hadn't saved a fixed percentage throughout their pre-retirement years. Rather, many readers said that they saved somewhat half-heartedly in their younger years, then kicked up their savings rate aggressively when they started to get "real" about retirement, often in their 40s and 50s. "I wish I had started saving more aggressively earlier on!"--or some variation of that statement--was a frequently echoed refrain. To read the complete thread or share your own retirement-savings rate, click here.

'I Have Been Making Up for Lost Time'Although some readers advocated for a flat savings rate, many posters noted that their savings rate trended up as they aged, no doubt the result of a confluence of factors, including higher absolute levels of income, which makes it easier to save, and a greater sense of urgency about retirement, which naturally increases as we age.

The savings pattern laid out by Keith999, who expects to embark on a financially secure retirement soon, will ring true for many investors. "In my 20s I spent, in my 30s I spent more, then in my 40s began saving about 6% of salary, early 50s about 12%, and the last 10 years I/we saved 20% of two salaries. The last 10 years probably represent over 50% of the total saved and indeed has put us over the top of what we need."

ColonelDan's savings rate moved up in stairstep fashion: "I managed to save/invest 5%-10% of my early meager military pay; 10%-15% of military pay in the latter half of those 24 years; 20%-25% of my regular civilian salary plus 100% 401(k) catch-up amount, 100% employer's 401(k) match, and 100% of all bonuses."

Cterry notes that increasing one's savings rate as retirement approaches can have the salutary effect of preparing a pre-retiree to live on a lower income during retirement. "The advantage to ramping up savings so much in the nine years before I retired was that I didn't have to worry about 'Some advisors recommend 90%-100% of current income for retirement--do I need that much?' because I already was living on 70% of my gross."

Playing catch-up is the name of the game for many pre-retirees. For FidlStix, running the numbers on in-retirement income needs was a wake-up call. "About eight years ago I did my first estimate of how much income I might need during retirement. That was a shocker. I was 10s of thousands [of dollars] behind where I needed to be at that point. Since then, I have been making up for lost time. I jumped my percentage of salary saved to 22% including a 5% company match. I also started a Roth IRA five years ago, contributing about 10% additional on average. My total saved this year will be about 38% counting the Roth."

'I Was Finally Able to Really Do Some Saving'Family matters also figured heavily into many posters' savings-rate patterns. Not surprisingly, many readers noted that helping to defray college costs for their children had put a strain on their savings, but with college over, they were able to sock much more away. Juris2 wrote, "I've saved a bit more since my kids ended college in 2003 when I started a supplemental retirement account (SRA). I'm currently putting about 25% per year in my retirement account and SRA combined, including employer contribution, as I approach retirement in two years. (Almost all savings accumulated beyond the RA and SRA were wiped out by college costs for my kids.)"

Original post:
How Much Did You Save for Your Retirement?

Video Link: https://www.youtube.com/watch?v=Ki6EJJ43KPE

14-09-2012 03:08 In this edition, we have a question from Charlotte, in Marseille: "I am a Belgian citizen and I currently reside in France. However, during my whole life career I also worked in Spain, France and Belgium. I should retire in two years. How will my pension be calculated?" The answer is brought to us by Vassela Stoyanova, Communication Officer at Europe Direct: "As you have worked in several EU countries, you may have accumulated pension rights in each of them. When the time comes for you to claim your pension, you normally have to apply in the country where you are living or in the country where you last worked. That country is then responsible for processing your claim and bringing together records of your pension contributions from all the countries you have worked in. If you've never worked in the country where you now live, you should apply to the relevant authority in the last country where you worked. Your application will then be processed there. You can only apply for your pension from the country where you now live once you have reached the legal retirement age in that country. If you have pension rights from other countries, you will only receive that part of your pension once you have reached the legal retirement age in those countries. You should apply for your pension at least six months before you retire because receiving your pension from several countries can be a lengthy procedure." For more information about the EU, call 00 800 6 7 8 9 10 ...

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euronews U talk - European pensions rights when retiring abroad - Video

By Chuck Jaffe, MarketWatch

BOSTON (MarketWatch) Most financial rules of thumb have been around for decades, offering guidance like Subtract your age from 100 to determine the percentage of assets you should hold in stocks, or To retire comfortably, your investments must generate 75% of your final salary.

The advice is more imprecise than incorrect, but it frequently is used as gospel. As the late Lynn Hopewell, former editor of the Journal of Financial Planning, once told me: Rules of thumb are for people who want to decide things without thinking about them.

While the market may be welcoming a new round of easing, there was no joy among savers. Chuck Jaffe reports. (Photo: Getty Images)

This week, however, Fidelity Investments unveiled what amounts to a new financial rule of thumb, in the form of retirement-savings guidelines based on its research, effectively laying out a road map that allows workers to check their progress at key points along the way.

The take-away on the research is likely to be considered the next financial axiom: Employees need eight times their ending salary to meet basic retirement income needs. That is the target that people will now be setting and the number they will be aiming for, rather than making decisions about a personalized, appropriate savings level.

Before Fidelitys research moves from suggestion to perceived financial guideline and, potentially to rule of dumb, its important to understand what the company was attempting and how it intends its numbers to be used.

For starters, Fidelity didnt just give the final target number, but rather set up checkpoints markers on the road of life where someone might want to measure their progress toward the ultimate goal. While acknowledging that every individual situation differs based on someones desired retirement lifestyle, Fidelitys target is replacing 85% of pre-retirement income.

Right off the bat, that means they have changed the older rule of thumb that talked about needing your investments to generate three-quarters of your pre-retirement income.

Having sufficient funds to generate 85% of your final salary by age 67 will require hitting the benchmark number of eight times final salary, Fidelity said.

Continued here:
Chuck Jaffe: New rules for a rewarding retirement

(MoneyWatch) Is your retirement on track? Fidelity Investments has a simple retirement savings check-up to help you figure that out.

Based on the Boston-based investment company's calculations, the average person who needs to replace about 85 percent of their working wages, would need to accumulate a nest egg worth eight times their ending salary. This 85 percent figure is a relatively common assumption, which assumes that you don't dramatically change your lifestyle in retirement. Naturally, if you're a big spender, you could need more. If you're someone who spends only a fraction of your wages and expect to pay off your mortgage and other debts before retirement, you could need considerably less.

How do you know if you're on track to hit this eight-times wages goal? By age 35, you should have saved an amount equivalent to one-times your annual salary. So, if you earn $50,000 annually, you'd want $50,000 in your retirement savings plan. By age 45, you'd want three-times your salary. Assuming you now earn $80,000, that means you need $240,000 in savings. By age 55, when you're (maybe) earning $100,000, you should have $500,000 invested for retirement.

More Americans living paycheck to paycheck4 money-smart things you're doing now What are the best retirement calculators?

Sound impossible? Not if you start saving just 6 percent of your income at age 25 and boost your contributions by just 1 percent per year until you're contributing 12 percent of wages, according to Fidelity. Fidelity also assumes a fairly conservative long-term portfolio growth rate of 5.5 percent annually; that your wages will increase by 1.5 percent per year; and that you'll receive Social Security benefits to defray some of your income needs in retirement. The fund company figures you'll retire at age 67.

Not satisfied with Fidelity's analysis, or not certain how to get back on track if your savings fall short of these benchmarks? Check out Kiplinger.com's Retirement Savings calculator. It's the best of the many dozens of retirement savings calculators that I've tested over the years. What makes it better than the rest is that it's simple to use, but also allows you to factor in all your potential sources of retirement income, which can include company pensions and home equity. Better yet, if your savings fall short, it tells you just how much you need to save each month now to have the amount you'll need when you stop working.

Read the original here:
How to do a simple retirement savings check-up

Most experts agree that your retirement portfolio's asset allocation--its mixture of stocks, bonds, and cash--will have the biggest impact on how much it grows, as well as its risk level.

Unfortunately, retirement savers seeking guidance on formulating an appropriate asset allocation may have a hard time knowing where to look. Sure, you could certainly do worse than adopting Jack Bogle's simple formula: 100 minus your age equals how much you should hold in stocks. But what if you want to come at the problem with a greater sense of precision? What if your personal situation puts you outside the norm--perhaps you're lucky enough to have saved far more than you'll ever need, or you've not saved enough and are playing catch-up?

Thankfully, you don't have to fly blind. Here are some key information sources you can turn to when crafting your own asset-allocation plan. You may find it useful to sample an array of different opinions; you're apt to find a comforting convergence among various sources of guidance on this topic.

How the Pros Do ItTarget-date funds, which are designed as one-stop investments appropriate for your retirement date, are incredibly handy for do-it-yourself investors interested in building their own portfolios. Target-date funds offer a shortcut for helping to figure out how much is appropriate for someone like you to invest in different asset classes.

Looking at target-date fund holdings is like peering into what professional managers would do with your money. Once you have a sense of how different professionals would invest, you can take the parts you like and leave what you don't. It's important to take a look at target-date offerings from a couple of different fund companies--funds for the same retirement date can vary substantially based on glide-path philosophy and types of holdings.

Morningstar's Target-Date Fund Series reports do a good job of summarizing the glide paths, as well as the pros and cons, of various target-date series. Some target-date programs maintain very high equity allocations before and even during retirement, a stance informed by the view that longevity risk--that is, the chance that you'll outlive your assets--should outweigh concerns about short-term fluctuations in an investor's principal.

Funds in T. Rowe Price's Retirement series, for example, generally have above-average equity weightings relative to other target-date funds in that same age band. Meanwhile, other target-date fund series have steered a more conservative, bond- and cash-heavy course, in the view that big stock weightings add more volatility than most people need or want, which in turn could lead to panic-induced selling amid stock market downturns. American Century's LIVESTRONG series, for example, is generally lighter on equities during the accumulation phase than most target-date series, though its portfolios maintain relatively higher equity weightings for those nearing or in retirement. Thus, sampling an array of opinions from target-date funds geared toward investors in your same age band can help get you in the right ballpark; Morningstar analysts' favorite series are those from T. Rowe Price, American Funds, JP Morgan, and Vanguard.

Morningstar's Lifetime Allocation Indexes, informed by the research of Ibbotson Associates, provide another vantage point on the asset-allocation question. In addition to providing separate asset allocations for various time horizons, the indexes also allow customization by risk profile for each age band: conservative, moderate, and aggressive. In addition, the indexes also show suballocations for various asset classes--they recommend percentage weightings in Treasury Inflation-Protected Securities and commodities, for example.

The Customized View Morningstar's Asset Allocator tool provides another, goal-based view of asset allocation, harnessing your own portfolio information if you've saved one on Morningstar.com. The tool calculates how likely you are to meet financial goals based on your current portfolio value, monthly investments, time horizon, and asset mix.

For example, how much would someone retiring in 2045 need to invest each month to accumulate $1 million? Set the number of years to 34 and financial goal to $1,000,000, and enter your current savings and monthly investments.

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Is Your Retirement Portfolio's Asset Allocation on Track?

In June, Robert Benmosche, the chairman of the insurance giant American International Group, said an increase in the retirement age was unavoidable. What surprised many is how high he predicted the age would go.

"Retirement ages will have to move to 70, 80 years old," Benmosche told Bloomberg. "That would make pensions, medical services more affordable. They will keep people working longer and will take that burden off of the youth."

Currently, Americans are eligible for early retirement at 62, and full retirement at 66. The loss of retirement funds during the economic downturn forced many to acknowledge that they would have to work longer. But Benmosche's statement shocked many. Will people really have to work a decade or more longer than they expected to make ends meet in retirement?

The answer is yes, according to some retirement experts. A number of factors, accelerated by the Great Recession, are now forcing people to change the ways they save for and think about retirement.

"Most people didn't have enough retirement savings before the downturn. The downturn was the two-by-four hit over the head that made them realize this result," says Steve Vernon, the president of Rest-of-Life Communications, a company that helps people adjust the way they save for their post-work years.

The U.S. government has already acknowledged that the official retirement age will need to increase further than the already-revised 67 years. But doubts about the long-term solvency of Social Security linger. And the need for retirees to find funding beyond the government entitlement is making the official age obsolete anyway.

"The idea of retirement is morphing into a period of time where you work for an extended period, perhaps not making as much money or as many hours, but you still bring in money and keep going," Vernon says.

He says there are two primary reasons for the change:

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The escalating retirement age