Saving for retirement is easier if you spend a moment thinking about your future self.
Hiding in plain view, however, are other keys to post-work bliss that are at least as important as savings rates and stock returns. Especially from your mid-forties, say, to your early sixties, you'll make money-related decisions that have clear implications for the near term but that require some imagination for you to see their critical impact on how you'll live 10, 20, or 30 years down the road.
After consulting retirement experts and poring over the latest academic research, MONEY has identified five of these secrets and, as a sixth, found a new twist on that admonition to save, save, save.
This story will lay out these hidden retirement drivers -- including your investments, health, career, family, midlife changes and debt -- and help you make use of them in your planning. You'll also see how they could affect your finances in the years after you call it a career, based on numbers crunched by Jack VanDerhei at the Employee Benefit Research Institute, whose computer model simulates 100,000 possible market paths.
The secret: 16.6% is the magic number.
How much do you need to save to retire? It's a vexing question because different generations of savers have different luck.
Some feel the market winds at their back during their careers, while others trudge through with low returns. Wade Pfau, professor of retirement income at the American College, which trains financial planners, has crunched the numbers to find a safe level of saving that would have worked in every historical market stretch going back to periods beginning in the 19th century.
He found that setting aside 16.6% of income and putting it in a diversified portfolio of stocks and bonds did the trick every time. (Good news: Employer matches count toward that savings rate.) That's if you're consistent about saving over 30 years.
A slow starter must ramp up higher -- a 45-year-old with two times salary saved would have to go for 20%. "During some boom times, workers could get away with saving less, but you can't count on above-average returns," says Pfau.
That's a useful warning right now because investors face some real challenges in the coming decade. Part of the problem is basic math: The 10-year Treasury bond yields less than 2%, and the Federal Reserve gives every indication that rates will stay low for years. "Current yields are a good predictor of bond returns," says David Blanchett, head of retirement income at Morningstar Investment Management.
Stocks are less predictable -- but risks today include a wobbly global economy and an aging population who may prefer holding bonds to stocks. The more you can save, the less you have to worry about this stuff.
Do more than the max. For higher earners, "maxing out" your 401(k), as satisfying as it feels, might be a trap. Within your 401(k) you can save $17,500 in 2013. Those 50 and older can save an additional $5,500.
Because of IRS rules that prevent plans from benefiting mainly higher-income workers, some plans limit the contributions you can make even more, says Rick Meigs, president of 401khelpcenter.com. Step up savings by adding to a Roth IRA, where after-tax money can grow tax-free. You may not be able to invest directly in a Roth if your salary is above income limits. (Starting at $178,000 for married couples filing jointly in 2013, the amount you can contribute begins to phase out.) Fortunately there's a backdoor: Save in a nondeductible IRA, which you can then convert to a Roth.
Buy cheap funds -- it's like saving more, but easier. One wrinkle of Pfau's study: He didn't include investing expenses in his returns. If you pay a management fee of 1% a year on your funds, says Pfau, the safe savings rate jumps to over 22%. You have one advantage over past investors who enjoyed more bullish times, though. You can buy index funds and ETFs that cost 0.10% or less.
Get in touch with the future you. Behavioral finance research suggests that saving is easier if you spend a moment thinking about your future self. Look at an age-morphed photo of your face, and you are likely to put away more, says NYU researcher Hal Hershfield. You can get a glimpse of your older self via a mobile app, such as Aging Booth (IOS, 99¢; Android, free).
Know when to dial down risk. Five years before retirement, zero in on how much you'll need to pay essential expenses, says financial adviser Harold Evensky of Coral Gables, Fla. Shift the equivalent of one year of expenses to cash or short-term bonds so that if stocks plunge when your quitting date is in sight, you'll know you'll have some extra time for markets to recover. This cushion will help keep you from selling in a panic.
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