Wouldn’t retirement planning be a lot easier if we had a crystal ball? Knowing how long you are going to live and what type of expenses you will have in retirement would make knowing how much you should be saving now a whole lot easier.
Trying to figure out how much to save can feel like a daunting task, and too often, the default is to simply not save at all. It’s important to remember that your LAGERS benefit was never designed to be your sole source of income in retirement, and even when combined with your Social Security benefit, you will probably need to supplement your retirement with some personal savings. But how much do you need to save?
When trying to figure out how much you should be saving, one easy approach is to determine what percentage of your pre-retirement salary that you would like to have in retirement. That percentage will be a little bit different for everyone depending on many factors such as your expected retirement lifestyle, your personal health, etc. Once you have a goal in mind, here is the quickest way to figure out how your LAGERS benefit will fit into the picture.
Each LAGERS employer elects a specific benefit program under which all of their employees are covered, with multipliers ranging from 1.00%-2.00%. To determine what percentage of your pre-retirement income will be replaced by your LAGERS benefit, you simply take your employer’s multiplier times your projected years of service.
For example, if you plan to work for 20 years at an employer with the L-7, 1.50% program, you would take:
20 years X .015 = 30%
From this quick calculation, you now know that with 20 years of service under the L-7 plan, you can expect your LAGERS benefit to replace approximately 30% of your pre-retirement salary. If you are including Social Security in your plan, you can visit www.ssa.gov to calculate an estimate of your future SSA benefit as well. Once you have figured out how much you think you will receive from your LAGERS and Social Security, you should have a better idea of how much more you should be saving to fill in any gaps.
Too often I hear comments like: “I’m too young to worry about retirement,” or “I’ll worry about retirement later.” The truth is, the younger you start planning the better off you will be, and while your LAGERS benefit is a guaranteed lifetime benefit, you still need to be saving on your own. Calculating your replacement ratio is a great way to ballpark your future income, even if you are a long ways from retirement.