How Much Should I Save for Retirement?

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Published by Teresa Milner

How much should I save for retirement? The easy answer to this question is: AS MUCH AS YOU CAN! I know there is more science and art to saving for retirement than this answer provides such as the questions of, “Who,” “What,” “When” and “Where?” It’s tough to predict what one’s future holds, but the one thing that is certain is you are the one that can take control of your financial future, and the earlier you start, the more successful you’ll be.

There are a number of unknown variables, so I like to suggest taking a good look at those in which you do have control. For example, market returns and future tax policies are out of your control, but the amount you save and the amount of risk you take on that savings are in your control. You also have substantial control over your employment and the length of time you’re employed.

So now let’s address more of the variables involved with planning for retirement:

WHEN do I start saving for retirement?

AS SOON AS YOU CAN! The power of compounding is enormous in your future picture. As an example (assuming a 10% return on investment):

  • Joy is a 14 year-old that works at a day care center. At age 14, she starts saving $2,000/year and continues to do so for 5 years in a row. At age 65, her $10,000 investment is worth $1,184,600.
  • Rachel is a 19-year-old that works at a coffee house. At age 19, she starts saving $2,000/year and continues for 8 years in a row. At age 65, her $16,000 investment is worth $1,034,148.
  • Kayla is a 27-year-old Civil Engineer and at age 27, saves $2,000/year through age 65. Her $76,000 investment at age 65 is worth $883,185.

It’s not too late to start. The later you get started, the more you will need to save but do yourself a favor and get a plan and stick to it. Make “paying yourself” a priority.

WHAT is the best place to invest for my retirement?

If you’re gainfully employed and your employer has a 401k, begin by maxing out your 401k. In 2015, 401k plans allow investors to contribute $18,000/year and if you’re over age 50, $24,000/year.

Another option is to open your own Individual Retirement Account (IRA) or Roth IRA. This is a great option for those who do not work for an employer with a 401k plan. The maximum annual allowable contribution is $5,500 unless you’re over age 50 – then your catch up amount is $6,500.

WHO should save for retirement?

If you plan to not work your entire life, then you should save. As I said earlier, this is an area you have control over and who cares more about your future than you?  It’s never too late to start, but know the later you start, the more you will have to save. Take responsibility and fund your own retirement.

WHERE do you find out what’s best for your situation?

Work with a financial advisor you trust and who has your best interests at heart. Determining when you can retire is like putting together a jigsaw puzzle. The more complicated your financial situation is, the more pieces there are to the puzzle. At Carson Wealth, we offer financial planning to answer questions specific to you and your family.

HOW much should you save?

Again – AS MUCH AS YOU CAN! Sit down and make some realistic estimates about your personal situation. If the standard of living you’ve become accustomed to is based on $80,000 after tax dollars, determine what it will take to continue that in retirement. If you are a high wage earner, you will need to save more to cover the additional money required to continue your lifestyle.

There are many variables to consider as well; i.e., you may have a mortgage now that will no longer exist once you’re retired. Your healthcare costs may be minimal now versus what they could be in retirement.   Do you plan to work part-time in retirement? At what age do you plan to retire? 62?  65? 70? What does your Social Security benefit look like? How can you maximize this income stream in retirement? Click here to watch this short video which may help you understand your Social Security options.

Recent articles I’ve read indicate that saving 15% is the new salary deferral elective – or in other words, the ideal contribution rate. Workers are taking a greater share of the responsibility for the security of their income in retirement, and their 401k is the vehicle that will shoulder this. Many companies that offer a match in their 401k have initiated auto enrollment (employees are automatically enrolled in their 401k) as well as an auto escalation (increasing contribution amounts) over the length of employment to encourage their employees to prepare for retirement.

As I said in the beginning, nobody knows what the future holds. One thing is certain though – we all have one. So why not take responsibility and be prepared for yours, whatever it may be? Don’t let inertia, procrastination or fear stop you from being financially healthy.



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