The Magic Numbers of Retirement Planning
Emily Brandon

Use these guideposts to help you prepare for retirement

We're all searching for a formula for saving and investing that will deliver a secure retirement. But there are a variety of factors we can't predict, including how the stock market will perform, how long we will live, and whether we will be forced into retirement before we're ready. Here are some key numbers from recent retirement research that can serve as guideposts for your planning:

4.6 years.

This is the ideal job tenure workers between ages 50 and 61 need to prevent a layoff. An Urban Institute analysis of Census Bureau data found that 50-something workers with more than 4.6 years on the job were less likely to lose their jobs than younger new hires. Older employees with less job tenure were more likely to be laid off than similarly skilled workers in their 20s and early 30s. Many older workers find themselves forced into retirement earlier than planned because of a layoff. "Fifty-something workers who are new to the job are more likely to be laid off than newly hired 30-year-olds," says Richard Johnson, a senior fellow at the Urban Institute and co-author of the report. "The more job tenure you build up, the safer you'll be when your employer needs to reduce payroll."

20 percent.

When laid-off men between ages 50 and 61 find new jobs, they are typically paid 20 percent less at the new job, according to Urban Institute calculations. Those who become reemployed at age 62 or older experience even steeper wage declines (36 percent). In contrast, wages fall only 4 percent among job changers between ages 35 and 49 after a layoff. "Most older workers have accumulated a lot of experience and skills that are quite specific to their job. These skills make them highly productive and raise their wages," says Johnson. "But these skills aren't as valuable after they leave their employer because some of the skills aren't applicable to other jobs. So their new employers aren't usually willing to pay them as much." Women who change jobs in their 50s are typically paid 21 percent less in their new job. Those who begin a second career at age 62 or older fare better -- they're paid just 15 percent less.

$1,177.

This was the average monthly Social Security payout at the beginning of 2011. You can get an estimate of how much you will receive based on your earnings history from the Social Security Administration website. For any income you need above this amount, you'll have to fill the gap with your own savings, investments, or other sources of retirement income. The maximum possible benefit for a worker who retires at age 66 in 2011 is $2,366 per month. To get this amount, he or she would have to earn at least the maximum taxable amount for every year after age 21. The maximum taxable amount is 2011 is $106,800.

3 percent.

Employers with Vanguard retirement accounts offered a median matching contribution of 3 percent for employees in 2009. To capture the match, workers had to contribute a median of 6 percent of their salary to the 401(k) plan. The most common 401(k) match formula is 50 cents for each dollar an employee saves, up to 6 percent of pay. However, Vanguard administered more than 200 match formulas, ranging from a maximum possible match of less than 1 percent to upwards of 10 percent of pay. The more your employer contributes to your nest egg, the less you'll have to fund on your own.

4.3 percent.

Early baby boomers born between 1948 and 1954 who lost money during the economic downturn must save 4.3 percent more of their annual pay to have a 90 percent chance of counteracting the impact of the financial and housing market crisis in 2008 and 2009 on their wealth, according an Employee Benefit Research Institute report. "When you figure out how much of a hit you took during those two years and spread it out over each year between now and 65, the people who are closest to retirement are going to have to save the most each year," says Jack VanDerhei, EBRI research director and author of the report. Making up for retirement and housing losses will be easier for younger workers, whose portfolios have more time to recover before retirement. "If they had a 20 percent loss and spread that over 20 years, that's only 1 percent more they need to save each year," says VanDerhei. Late baby boomers will need to save 1.2 percent more to break even. Generation Xers only need to save 0.3 percent more to cancel out the impact of the financial crisis.

3 years.

It took three years for the average 401(k) balance to climb back to the amount it held in 2007. The average Fidelity 401(k) held $69,200 in 2007, before it plunged to $50,200 in 2008, due to market declines. It took until 2010 for continued saving and the stock market rebound to push 401(k) balances above their 2007 peaks. The average Fidelity 401(k) account balance was $71,500 at the end of 2010.

83.5.

A male born in 1946 can expect to live 17.5 more years, until age 83.5. Once he makes it to 70, his life expectancy increases to 84.7, according to Social Security Administration data. A woman of the same age currently has a life expectancy of 85.7 years. For the earliest female baby boomers retiring this year, that's an average of nearly 20 years of retirement that must be financed. Many financial advisers recommend planning for at least a 30-year retirement if you are in good health, in case you live longer than expected. "Remember, that's just the average, and that's not really including medical advances, so we plan on at least age 91 for our clients at retirement, and 96 or 101 for younger clients," says Rick Brooks, a certified financial planner and vice president of Blankinship & Foster in Solana Beach, Calif. "It's better to plan on living too long and die with money left over, than to plan on living the average and come up short on resources."

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Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio

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Spend 'Til the End: The Revolutionary Guide to Raising Your Living Standard--Today and When You Retire

The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work, and Living

Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back