Retirement planning is as much an art as a science. One of the most common questions is: How am I doing? No one can tell you for sure, but one nifty little website tries to give you a sense of your progress compared to a predefined index. This website, the Pudding Index, tries to answer the question: when you retire, what percentage of your income will your retirement accounts provide?
The Pudding Index does so by comparing you to a Benchmark Account (represented by the score 100). The Benchmark Account for women means that you are on track to save 55% of current income by age 65. For men, it means that you are on track to save 65% of current income. If you score above a 100, it means that you are ahead of the 55% (or 65%, if you are a man) of current income. If you score below a 100, you are lagging behind the index. The Benchmark Account for women is lower because women tend to live longer – another reason we ladies need to save early and save often. The Benchmark assumes that your investments will grow at 7% a year and that you will contribute 9% of pay to retirement every year. It also adjusts for inflation in terms of pay.
The Pudding Index calculator requires four simple inputs: (1) birth date, (2) gender, (3) current income, (4) defined contribution assets (401Ks and IRAs for most people). Then the Pudding Calculator spits out a single number to show how you compare against the index.
This Index doesn’t take into account cash savings, possible Social Security benefits, government / private pensions, or other assets (such as real estate, inheritances, business interests) that can become retirement assets. It’s not a perfect measure (and one doesn’t exist), but it is a good way to check your progress against an Index based on just what you have saved in defined contributions accounts.
Most retirement experts I’ve read recommend 70% to 90% of your current income. When I input my factors, I received a score above 100. The website says that if my account’s performance were to match the Benchmark Account’s (i.e. every year I save 9% of pay and my investments grow at 7%), my retirement assets can replace about 65% of my income at 65. Given that retirement is always a moving target, I prefer to err on the side of saving too much rather than too little. I am glad to know that I’m on the right track, though.
Feel free to share your scores in the comments. Did this calculator teach you something new? Or did it confirm what you’ve already known?
image source: puddingindex.com
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My score was 168. I guess I already know that I'm oversaving, but I'm still enjoying my life today and doing things I want to do, so I don't feel strapped for cash. I am not willing to decrease my savings because you never know what lies ahead, and I, like you, would rather oversave.
One other thing I notice is that even though these calculators say I'm saving too much, the proof is in the pudding! hee hee (pun intended). We'll see what happens!
Ooops. My score was 42. Looks like I have a loooot of work to do!
Umm. My score was in the 500s. Huh?! Thanks, low salary, you make my retirement savings look phenomenal!
Wellheeled, I created the Pudding Index and I appreciate your accurate description/comments/analysis. Good job!