How Much Do You Need to Save for Retirement?
Do you want to stay on track for your retirement? Your financial advisor in 10601 will ask you how much money you think you’ll need to retire. The answer to this question largely depends on your current income and the kind of lifestyle you want in retirement.
According to research, 401(k) participants think they need an average of about $1.7 million for them to retire. Unfortunately, the majority of them are far from being on track to get there. Unless you want to end up creating shortfalls in your nest egg, you’ll have to know how much money to save, when to save it, and how you can make your savings grow.
The 4% Rule in Retirement Savings
Your retirement income should be at least 80% of your pre-retirement earnings. It’s important to note that you can adjust this amount based on your other sources of income, including your pensions, Social Security, part-time employment, lifestyle, and health.
Determining the amount of money you should save to get your desired retirement income can be achieved in various ways. However, most financial experts recommend the use of the 4% rule. All you have to do is to divide your target annual retirement income by 4%.
You can apply the 4% rule using the example stated above by dividing $80,000 by 0.04. If you’re looking for about $80,000 per year, this formula shows you that you’ll require a nest egg at retirement of approximately $2 million.
This strategy assumes about a 5% return on your investments after inflation and taxes with no additional retirement income and the kinds of lifestyle that’s similar to the one you’ll be living after you leave the workforce.
15% Savings Guideline
Think in terms of a multiple or percentage of your salary so that you can come up with the amount of money you should have accumulated at each stage of your life. By age 30, you should have an amount that’s equal to your annual salary in accumulated savings.
This means that you should start saving about 15% of your gross salary by the time you reach the age of 25. At ages 40, 50, 60, and 67, your savings benchmarks should be two times, four times, six times, and eight times your annual salary, respectively.
25% Savings Guideline
You can also use a more aggressive formula that requires you to save 25% of your gross salary per year by the time you hit your 20s. Although this may seem daunting, remember that this includes your 401(k) withholdings, your employer’s contributions, and your other types of savings. Using the 25% savings guideline allows you to accumulate a full annual salary by the time you turn 30.
Using a similar average savings rate for the 15% savings guideline, you should yield about two times your annual salary at age 35. At ages 40, 45, 50, 55, 60, and 65, your savings benchmarks should be three times, four times, five times, six times, seven times, and eight times, respectively.
Talk to a Financial Advisor in 10601!
Keep in mind that your monthly expenses, home repairs, and credit card debt can significantly affect your actual ability to save. Thankfully, the team of experts at 1879 Advisors is here to help you keep your money safe and your family financially comfortable for years to come. Contact us today to schedule your appointment.