When do you want to retire? When you are 62? 65? 70? Have you figured out how much you need to save to retire when you want to?
According to the Employee Benefit Research Institute’s (EBRI) 2016 retirement confidence survey, 77% of workers polled said they expect to retire at a later age than they previously planned, and all of their reasons had to do with uncertainty regarding finances. Do you have a plan in place that will allow you to retire on time?
Knowledge is Power
According to the same EBRI study, 48% of workers have never calculated how much they will need to live the way they want to when they retire. If you don’t know how much you need, how will you know how much to save? Unfortunately, figuring out your savings goals isn’t as easy as plugging some data into an online calculator. There are multiple unique factors involved that will affect the outcome, such as years from retirement, current savings, the economy, and retirement lifestyle expectations.
The advice from financial professionals across the board is to save 10-20% of income towards retirement, but even that is a vague generalization. If you start saving in your 20s, 10% might do you well due to compound interest, but if you are getting a later start, you will need to save more. What can you do you to ensure that you will be able to retire when you want to?
Know Your Savings Benchmarks
While charts and calculators won’t speak to your personal situation, they can give you an idea of what your savings should look like if you want to meet your goals. Take a glance at the chart below. Instead of showing you what you should save monthly from here on out until retirement, it lets you know if you are on track by looking at what you have saved up until now. From there, you can evaluate what you need to do if you are behind.
Using a benchmark like this one personalizes your progress by reflecting how much you will need in retirement based on your actual circumstances. Many people rely on Social Security or pensions to provide the bulk of their retirement income, but the more you earn, the less Social Security you will receive, so what you need to save to retire on time will change based on your pre-retirement income.
Maximize Your Savings
There are many uncertain factors when it comes to your retirement financials, but one thing you can control is how much you save. Social Security may change, inflation will increase living expenses, medical costs are unpredictable, and what the economy will do is anyone’s guess. But if you consistently save as much as you can, you are setting yourself up for success. If you already feel maxed out in your budget, make it a habit to save any extra money that comes your way, whether it’s a bonus from your employer, an increase in pay, or a tax refund.
When determining what you need to retire, plan on a minimum of $15 to $20 of savings per dollar of the shortage between your Social Security and/or pensions and your retirement living expenses. For example, if your calculations show that your retirement expenses will be $25,000 a year more than is coming in from outside sources, you will need at least $375,000 to $500,000 in savings to ensure you can afford your current lifestyle. The more you save, the more you are in control of your financial future.
Life moves along rapidly and brings many changes along with it. Once you’ve set your goals and calculated how much you need to save, make it a habit to reevaluate once a year to make sure you are still on track to meet your benchmarks. It’s also a good idea to reassess your progress if you go through any life transitions such as a job change, marriage, divorce, or having a child.
Take the First Step
One in four people has no idea how much they should be saving for retirement. If this is you, the first step is to consult with a financial advisor. If you do know what you are aiming for and how to get there, we can help you stay on track and find ways to boost your savings.
No matter how old you are or how little you have saved, it’s never too late as long as you get started today. To learn more, take a minute to download our free checklist, 12 Steps to a Successful Retirement today. It provides you with a handy checklist to see if you are on track for a successful retirement! If you need help, call my office at 770.249.7424 or email me today at firstname.lastname@example.org.