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How Much Should I Save for Retirement?
Is there a more anxiety-inducing question? We all want to live comfortably after we retire but trying to calculate how to accomplish that can be daunting. What's more, it's not just about coming up with a figure; there are many factors to consider that can substantially influence your lifestyle, income, and expenses. 1879 Advisors is here to provide you with the tools you need for expert retirement planning, starting with how much you need to save up.
Setting Retirement Goals
Think About Your Lifestyle
More than just the money, you need to think about how you want your lifestyle to look when it comes to retirement planning. Do you plan on taking a lot of trips? Will you live in the same house, or do you plan to downsize to something more manageable?
The way you want your life to look post-retirement will determine how aggressively you should be saving or investing. The bigger your plans, the more money you'll need to put away, so it may not be as simple as saving a recommended amount of your income year to year. Plan your spending first (ideally with guidance from a professional advisor) and build your goals from there.
Most retirees live off more than just savings. Investment returns, Social Security, and even part-time jobs serve as effective supplements to income. Your retirement figure should consider these factors but not depend on them entirely. Economic trends are casting doubt on Social Security payments' reliability, and the stock market is difficult to predict. As with all wise investments, it's best not to put all your eggs in one basket.
Do You Plan on Having Additional Lines of Income?
Coming Up with the Figures
How Much Should I Save?
As an example, most advisors recommend you plan to save enough to replace 70% to 80% of your annual income pre-retirement. So, if you are making $100,000 a year, you should plan on having $70,000 to $80,000 you can depend on every year of retirement. This should consider an annual inflation rate of 2% as well as a 5-6% return rate on your investments.
As we mentioned, this is assuming you sustain your same spending habits. If you plan to spend less in retirement, you may have the freedom to aim for 70% income replacement or perhaps a quality of life similar to what you are experiencing now.
How Do I Get There?
There are several paths to reaching your desired retirement figure. However, we recommend a four-part strategy – save, get help, invest, and adapt.
The rule of thumb is saving at least 15% of your annual income every year. As you accrue this money, you have the liberty of investing portions of it as you see fit. Even if you don't invest any of it, saving 15% of your income over your lifetime should put you on track to the 70-80% income replacement benchmark over four decades.
For most working people, coming up with the time to get properly educated in finance and investments require time they simply don't have. Retirement is a sensitive and important issue. If you miss something or don't take important factors into account, you could be setting yourself up for a rude awakening when it's too late to do something about it. Seek out the help of an investment, financial, or retirement planning advisor so you can get the guidance you need to plan your retirement the right way.
More times than not, investments will yield a higher return over a lifetime than simply saving. There are multiple investment options and ways to invest; for example, setting-up tax deferred employee sponsored 401(k)s or IRAs. You should speak with an advisor to see which one works best for you. However, when you invest, do so with a diversified portfolio in mind. Distribute your money between safe and riskier investments with higher upside but never put all your money in one place. This will help to keep your assets safe regardless of what happens with the market.
Retirement planning is not a set-and-forget deal; this is an active process that requires attention. The economy is continually changing, and so is your life. Keeping track of your plan and making changes when they're needed will help you make sure your money is safe for the long haul.
Time is of the Essence
You've probably heard the adage before – "The best time to start saving for retirement was yesterday; the second-best time is today." Tired, trite, but true. The sooner you plan, and the sooner you start saving, the more likely you will be to meet your retirement goals. As a general rule, to be safe, you should ideally have saved the equivalent of your entire annual income by the age of 30, two times your income by 35, seven times by the age of 55, and ten times by the age of 67. These figures might seem substantial, but the sooner you start saving, the better your chances to get there.
Want to Learn More About Retirement Planning?
At 1879 Advisors, our goal is to keep your money safe and your family financially comfortable for years to come. We use historically proven strategies backed by decades of retirement planning experience to make sure you meet your goals and stay on track for your ideal retirement. Contact us today to learn more!