How much to save for retirement?
Retirement savings are a difficult topic for most Americans. The majority of people in the US give themselves a C or lower for their retirement savings plan. If you don’t want to end up in this majority or want to improve your retirement savings situation, you can start by reading this article and making a retirement savings plan. Some people say that you should save 10% of your income for retirement, however, this rule is not universal. It’s a much better idea to consider your age, expected spending in retirement, expected retirement age and your existing retirement savings to figure out how much you should be saving for retirement.
How much am I going to spend in retirement?
The first step to figuring out how much you should be saving for retirement is estimating how much money you will need for each year of retirement. If you want to keep up the same lifestyle as before retirement, you need to expect to spend 70-80% of your current yearly income in retirement. If you are okay with scaling back your lifestyle, you might need less money. On the other hand, if you want to travel the world and fulfill some expensive lifelong dreams, you will need more. You should also consider your other sources of income, such as Social Security payments, pensions and rental income, as they can count towards your retirement income.
Take your current age into consideration
The earlier you begin to save money towards retirement and the further you are from retiring, the easier it will be to reach your goal. For instance, if you’re still far away from retiring, you can invest money into high-risk high-yield investment options, but if you’re just a few years from retiring, you should invest conservatively and get a small but reliable return. If you are still young buy you also want to retire early, you should consider how early retirement will impact your finances, as it means that you will need to have more money saved and that you will have additional expenses, such as health insurance payments up until the age of 65 when Medicare starts.
At what age do you expect to retire?
Constant progress in the quality of life and healthcare has caused life expectancy to rise significantly, so while a few decades ago people who retired at 65 planned to live an additional 10 to 15 years, today this number is closer to 20-30 years, which means that you need to have a lot more savings. While retiring early can be pretty difficult financially, choosing to retire later, such as at the age of 70, can have a powerful positive impact on your retirement fund because you will be able to get more guaranteed income through Social Security payments if you retire after 70.
Evaluate your existing retirement fund
The last thing that you should consider when planning your retirement savings plan is the assets you already have. This can include your existing retirement savings, your business, property, assets you’ve inherited, etc. For instance, if you have a large home and you are okay with downsizing, you can calculate how much you can sell your house for and how much you need to buy a new home, the rest can go towards your retirement.