How much should you put aside for retirement? It’s one of the most often asked questions. And it’s no surprise. There are a lot of unknowns: When do you plan to retire? How much money do you plan to spend in retirement? And how long will it last?
Knowing how much money you’ll need to save “by age” will help you stay on track and meet your retirement objectives. To calculate the figures, there are a few easy formulas you can employ.
Financial advisers frequently recommend replacing around 80% of your pre-retirement income to maintain the same lifestyle after retirement. That means if you earn $100,000 per year, you should strive for at least $80,000 in retirement income (in today’s money).
Thinking about how your spending may alter once you retire is crucial. Some, including health care and travel, are expected to rise. However, many regular expenses could be reduced: you may no longer need to set aside a portion of your income for retirement.
It’s possible that your mortgage and other bills have been paid off. Furthermore, your taxes should be decreased because payroll taxes, which are deducted from each paycheck, would be eliminated.
When finding your retirement “number,” it’s vital to remember that it’s not about deciding on a specific quantity of savings. The essential issue in estimating how much money you’ll need to retire is whether you’ll be able to generate enough income to maintain your preferred standard of living once you retire.
To start figuring out how much you need to save at different phases of your life, consider saving a percentage of your gross wage, such as saving 15% of your gross salary starting in your 20s and continuing throughout your working life.
Important things to Consider
When do you intend to retire?
The amount of money you’ll need to save and the milestones you’ll reach depend on when you expect to retire. The longer you put off retiring, the lower your savings factor will be. Because you’ll have fewer years in retirement and a more significant Social Security payment if you wait, your funds will have more time to grow.
Of course, you don’t always get to choose when you retire—health issues and employment availability are also factors that may be beyond your control. However, one thing is certain: working longer hours will make it easier to meet your financial goals.
Inflation and retirement
It’s also important to account for inflation when calculating how much money you’ll need to retire. Your money’s purchasing power (worth) declines as prices rise over time. This means that the money you put down today will likely not stretch as far in 20 to 30 years.
What is the Minimum Requirement for a Couple to Retire?
How much a couple needs to save to retire depends on their current annual income and the lifestyle they wish to live when they retire, just like an individual. Many experts believe that a couple’s retirement income should be around 80% of their final pre-retirement annual earnings.
Social security and pensions
If you’re like most individuals, you’ll receive assistance from sources other than your savings, such as Social Security benefits. For most people, Social Security provides a significant source of income.
However, for higher-income retirees, the percentage of income that Social Security would replace is often lower.
If you have any pensions from current or previous jobs, be careful to factor them in. The same is true for any other reliable and permanent sources of income, such as an annuity that pays out after you retire.
Final Notes
There is no one-size-fits-all approach to estimating your retirement savings goal. The performance of your investments will fluctuate over time, making it difficult to predict your exact income needs.
You’ll be able to save more for retirement at times and less at others. What matters is that you achieve as close to your savings goal as possible and track your progress at each checkpoint to ensure you’re on track.
Focus on your long-term goals, regardless of your age. Don’t be disheartened if you haven’t reached your nearest milestone—by planning and saving, you can catch up to future milestones. The most important thing is to act, and the sooner, the better. If you have access to one, a 401(k) would be an excellent place to start. Consider an IRA if you don’t already have one.
Recent Comments