How Much To Save for Retirement
How Much To Save for Retirement – What’s Your Magic Number?
This question has been asked so many times and there is no one simple answer. Well maybe there is if you say “as much as you can”. How much to save for retirement has so many variables it will make your head spin.
You can read opinions from many financial planners citing actuarial tables and formulas, but the bottom line is start saving for retirement as early as you can and save as much as you can.
According to statistics and studies made, Americans aren’t the best at socking away money for their retirement years. They go on to say that in excess of 80% of us have no idea on how much to save for retirement.
I guess if we knew how long we were going to live and what the inflation rate would be, it would help. But how about the economy, income taxes, our health, and family needs?
Actuarial charts say that a man who is 65 today will live until he’s 84.3 years of age. Suppose he’s fairly healthy and in good shape and lives until age 95? That alone blows all of the formulas out the window.
Inflation also plays an important role in knowing how much to save for retirement. It doesn’t take much of an upward change to reduce your purchasing power.
Plus, we need to assume that our health will not be the best after we retire. In addition, I seriously doubt if we’ll see any reduction in the cost of medical insurance either.
Retirement Calculators
You can make a quick and dirty calculation as to how much to save for retirement using one of the popular formulas. Figure out your basic needs such as housing, etc. after you retire and then calculate the amount of money you will be receiving. The difference is what you will need each year from retirement savings. I read an interesting article on the Bankrate website titled 6 last minute retirement planning strategies that you will enjoy reading.
Financial gurus then use an old rule called the 4% rule. It’s far from being very accurate however. It assumes that if you withdraw 4% of your retirement savings, it needs to be enough to last 30 years. Now you can see just how difficult it really is to know how much to save for retirement.
There are so many variables that could come into play with this rule that we become more confused than ever. As we mentioned before there are some good tips on how to retire comfortably.
Start early in saving for retirement and take advantage of compounding. If possible, save at least 20% of your net pay and don’t put all of your retirement savings into one type of investment. Some diversify by purchasing low cost index funds.
You know your financial needs and lifestyle better than anyone, so go ahead and make a rough calculation and see how much do you need to save for retirement.
Just remember though, everyone’s magic retirement number is different and all don’t achieve it. Also, don’t let the “average” needs confuse you. I’ve never met anyone who is average, have you? Give us your thoughts below.
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6 responses to “How Much To Save for Retirement”
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I hope that I’ll maintain enough health and energy to be able to work and support myself and my family for as long as I can. But it’s still important to save for retirement. It’s the first time I hear about the retirement calculator. I’ll try it out and see what I come up with. Thanks!
Thanks for your comment Pete. By all means, use the calculator, but even if you aren’t able to make large contributions now, start doing something. Later on, you’ll be glad that you did.
4% should last 30 years? Thats an insanely large amount of money. Americans definietly live for the moment and not the future. I definitely dont want to end up without any money..
With inflation, and possible decline in health, 4% might not be as high as it appears.
Very good points. Calculating what you’ll need and having an estimate of what to set aside is a good way to begin. I always encourage my students to start with whatever little they have as soon as they can. This is because there is just a lot of pressure on money now and less to set aside.
Thanks, Isabella, for sharing this. Sounds like your advice to your students is spot on. Start early with as much as you can, and it will have plenty of time to grow.