Retirement Planning: The financial capital-to-living expenses ratio

5 Checkpoints on Your Race to Retirement

Excerpt:

How much money do you have set aside? You'll need, all in, at least 15.7 times your pay in your nest egg to fund your living expenses in retirement, according Hewitt Associates' Retirement Income Adequacy at Large Companies: The Real Deal 2010 study.

Happily, part of that 15.7 will come from the net present value of your stream of Social Security benefits, which Hewitt estimated to be 4.7. Thus, you'll need only at least 11 times your pay set aside in your defined contribution plan or other accounts earmarked for retirement. And, the "number" goes down a bit more if you have a defined benefit plan. That counts for 2.1 times pay on average. So, if you have a defined benefit plan, you'll need just nine times your pay to fund your retirement.

One bright spot about Hewitt's number of 15.7 is this: It reflects an explicit assumption that employees will bear the cost of post-retirement medical care, and that medical costs will increase at a rate greater than general inflation. Speaking of expenses, most experts say getting a handle on all your expenses, not just health-care costs, is a must-do for your checklist. Read Hewitt's study here.

Other firms, meanwhile, put the number at 10 times your salary. According to a Lincoln Financial Group study, would-be retirees should aim to have at least 10 times their income at a typical retirement age. There is, however, a caveat. "While the 10X score can help people gain perspective on the need for retirement planning, it's important to note that this is a baseline number and should only be used as a conversation starter," said Chuck Cornelio, president of the defined contribution business for Lincoln Financial Group.

Cornelio said savers should discuss their 10 times pay number with a financial adviser to determine whether this number fits their savings needs, or should be adjusted based on their individual circumstances.

Comment: Excerpt is just the first of 5. Scary thinking about this. 4 years away (Lord willing)