This is one of the most common questions people have. Experts believe that many Americans aren’t adequately prepared financially for retirement. In fact, some have no retirement savings at all. Retirement planning can be intimidating, especially for younger people. A big mistake made by many is not beginning to save early enough. To reach your specific retirement savings goals, the most important thing you can do is to start saving as soon as you begin working. Too many young workers make the mistake of thinking they have years to start saving. The earlier you start, the better prepared you will be.
Barron’s reported that the average American is vastly underestimating what they will need in retirement, but they don’t realize it. They cited the biggest reason people give for not saving more is their living expenses. It’s easy to get sidetracked when it comes to spending, so it’s smart to automate your savings. Just how much should you be saving? According to Fidelity Investments, individuals should aim to save at least 15% of their pre-tax income each year for retirement. If you’re lucky enough to get an employer match, it can help you achieve that goal. Fidelity estimates that in order to retire by age 67, you’ll need to have 10 times your final salary saved by that point.
Retirement saving goals for every age
Specific retirement savings targets based on your age and salary can be an effective way to track your progress against your retirement savings goals. Ideally, you should start your savings plan in your 20s to attain the goals below. Make saving a priority and focus on making smart financial choices in your 20s and 30s. This includes paying down debt. A focused savings plan will get you on the right track to a financially sound retirement. Here are some recommended retirement savings benchmarks for every age:
· 30 years old – 1X your annual salary
· 35 years old – 2X your annual salary
· 40 years old – 3X your annual salary
· 45 years old – 4X your annual salary
· 50 years old – 6X your annual salary
· 55 years old – 7X your annual salary
· 60 years old – 8X your annual salary
· 65 years old – 10X your annual salary
Factors impacting your retirement savings plan
By the time you reach your sixties, you should be saving aggressively for retirement. The above is simply a rule of thumb. Other factors that you should consider is the age at which you plan to retire and the lifestyle you wish to have in retirement. The age you plan to retire will have a big impact on your savings needs. The longer you work, the longer you have to reach your goals. A person who plans to retire at age 55 will need to save much more aggressively early on than an individual who plans to retire at age 65. You may need to adjust your benchmarks along the way to make up for earlier retirement. This would include saving a higher percentage of your income to hit those benchmarks much earlier.
How do you plan to live in retirement? Are you looking to maintain a mortgage-free residence and live a simpler, less expensive lifestyle? Are you planning on traveling the world or buying a vacation home that will result in an increase in your expenses? Knowing how much you’ll need for retirement is a combination of estimating your future living expenses and an educated guess based on lifestyle goals. This is especially true if you are younger. If you think you’re going to want to have extra money to spend, save more now, so won’t run out in retirement. No matter what your age, stay focused on the end goal. The more you save now, the more secure you will be in your retirement.
Building your retirement nest egg
We hope the benchmarks above help you to focus and make steady progress towards your retirement savings goals. Although the numbers above may seem intimidating, if you make saving a priority, they are definitely attainable. If you’re falling short of your retirement targets, It’s not too late to increase your savings. Be sure to take advantage of the full company match in your workplace retirement plan. It’s basically free money. Spirit Financial Credit Union provides three Individual Retirement Account (IRA) options to help you reach your investment goals. They include a Traditional IRA, Roth IRA, and Coverdell Education Savings Account. Look to the future and start planning today.
This material is provided for general and educational purposes only, and not intended to provide legal, tax or investment advice.