The question on many minds is: how much money should I save for retirement? While the answer varies depending on individual circumstances, there are general guidelines to help you get started.
First, it’s important to understand there is no magic number for retirement savings. The amount you need depends on many factors, including your lifestyle, health, goals, and how long you expect to live. Will you be receiving an inheritance? Do you have a retirement fund set up through your employer? Have you and your spouse invested in a life insurance plan? These are just a few things to consider.
DEFINE YOUR RETIREMENT GOALS
What are your retirement goals? If you plan to travel extensively or pursue other expensive hobbies, you’ll need to save more money than if you plan to live a simpler lifestyle. Your retirement goals can also impact the age at which you retire. If you plan to retire early, you’ll need to save more. Life expectancy also impacts your goals. You will need to save more to ensure your retirement savings last as long as you expect to live.
ANALYZE YOUR EXPENSES
To determine your retirement savings needs, take a closer look at your expenses. Start by making a list of your current expenses, including everything from housing costs to groceries to entertainment. Then, consider which expenses will change in retirement. For example, you may no longer have a mortgage or car payment, but you may have higher healthcare expenses.
Consider the lifestyle you are currently living. If you live a frugal lifestyle, you may be able to get by with less retirement savings. If you have expensive hobbies, travel frequently, or have high medical expenses, you need to save more.
USE A RETIREMENT CALCULATOR
After determining your future expenses, you can estimate how much you’ll need to save using a retirement calculator. There are many retirement calculators online which will factor your current age, expected retirement age, income, expenses, and expected rate of return on your investments to help you determine how much to save for retirement.
Some experts use the 80% rule, which suggests retirees need about 80% of their pre-retirement income to maintain their standard of living in retirement. Others recommend aiming to have roughly 10 times your annual salary put away by age 67. Another guideline suggests workers should save at least 15% of their pre-tax income each year up to the age of 67, starting as early as 25.
FACTOR INFLATION INTO YOUR PLAN
It’s also important to remember inflation will impact your retirement savings. As the cost-of-living increases over time, more money is needed to maintain your standard of living. You’ll need to factor inflation into your retirement savings plan and adjust your savings goals accordingly.
START SAVING NOW
It’s never too early (or too late) to start saving for retirement. The earlier you start, the more time your investments will have to grow. However, even if you start later in life, it’s important to begin saving and making regular contributions to your retirement accounts. By starting early, you can take advantage of compound interest, which allows your savings to grow over time.
If your employer offers a retirement plan, such as a 401(k) or 403(b), be sure to contribute to it. Your contributions will be tax-deferred, which means you won’t pay taxes on the money until you withdraw it in retirement. In addition to your employer’s retirement plan, consider opening an Individual Retirement Account (IRA) or a Roth IRA. These accounts offer additional tax advantages and can help you save more for retirement.
PROTECT YOUR FAMILY
While planning for retirement is essential, life is unpredictable. Not all of us make it to retirement. Investing in a life insurance policy is a way of providing financial protection for your family in case there is an unforeseen circumstance. Royal Neighbors has a 128-year legacy of providing its members with affordable term insurance that provides more than just death benefits to loved ones. Learn more.
The amount you need to save for retirement will depend on a variety of factors, including your lifestyle, retirement goals, and expected expenses. While there is no one-size-fits-all answer, taking a closer look at your expenses and using retirement calculators can help you develop a savings plan to achieve your retirement goals. The key is to start saving as early as possible and to make regular contributions to your retirement accounts.
This article is for informational purposes only, you should not construe any information provided as legal, tax, investment, or financial advice. No reader should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.
