Saving for retirement on a low salary

With a little careful planning, you can still have a comfortable retirement. There are plenty of tools and resources to help you figure out where you stand.

Question: Retirement terrifies me. My husband and I are in our 50s and have worked in relatively low-paying careers all our lives. We have about $100,000 in equity in our home and less than $200,000 in retirement accounts. We contribute to our retirement plans at work and plan to work well into our 60s, if health permits. I know we should be saving more, but I’m not certain how much more or how the money should be invested. Any suggestions? —Cheryl P.

Answer: There’s no doubt that the prospect of retiring can be daunting. Every day it seems yet another study is released that talks about how woefully unprepared Americans are for retirement and predicts we’re all going to have live on subsistence rations after we call it a career.

So I’m not at all surprised that contemplating your post-career life has you somewhat stressed.

But I think a little perspective is in order here. Yes, there are undoubtedly going to be many people who, either because they don’t make enough money to save much or because they live too lavish a lifestyle to allow for meaningful saving, will face some grim times when they retire.

But you don’t appear to fall into that camp. You and your husband have already accumulated, if not a huge retirement stash, at least a pretty decent one, especially considering that you haven’t been pulling in the big bucks during your career.

Throw in the fact that you’re both still contributing to your retirement plans, that there’s still plenty of time for your nest egg to grow and that you also have a nice little home equity cushion you can eventually fall back on, and it may very well be that your retirement prospects aren’t as gloomy as you seem to think.

But there’s no need for you to fret and obsess in this purgatory of uncertainty you’re living in. What you and your husband need to do is get a handle on where you actually stand. And fortunately, that’s not too difficult a task.

For a quick answer to your question of how much you and your husband ought to be putting away for retirement, you can go to our What You Need to Save calculator. Just plug in your age, your annual income and the amount you already have tucked away in retirement saving and voila! You’ll get an immediate estimate of how much you must contribute each year to your retirement accounts to retire on 80% of your pre-retirement income after deducting the money you save each year.

But while this sort of back-of-the-envelope analysis is fine for a rough sense of how you’re doing, you should also do a more comprehensive evaluation that can better account for your specific circumstances.

So, for example, by going to a more sophisticated tool such as Fidelity’s Retirement Income Planner - or, if you think you’re more than 10 years away from calling at career, the myPlan Retirement Quick Check tool - you can factor in details such as your estimated retirement age, projected Social Security payments and other sources of income such as part-time work in retirement to arrive at a more customized appraisal of your prospects.

These tools - which are free, but do require you to register at the site - can also help you answer your question about how your money should be invested. The first time you run the numbers, just enter your retirement savings as you currently have them divvied up among stocks, bonds, mutual funds, CDs or whatever. The tools can then show you how you might be able to improve your odds of achieving a comfortable retirement by changing your investment strategy.

Who knows, after going through this process, you may find that your fears about retirement are overblown and that you’re actually doing better than you think. But even if that’s not the case, then at least you’ll have a more accurate idea of where you stand and what moves you can make both before and after retiring to improve your chances of having a secure retirement.

So stop this worrying and run a few scenarios to see whether you’re on track. Or if you’re uneasy about doing this sort of analysis on your own, then consider hiring a financial planner to do it for you. Because until you actually crunch the numbers or get someone to do it for you, you’ll never know whether your worries are justified or you’re obsessing needlessly.