What if we told you that 33% of Americans don’t have any retirement savings? We hope that this would come as a shock to you. Many Americans ask the question, “how much do I need to retire?” If you’re one of them, you’ve come to the right place. Keep reading to learn what you should know about retirement.
How Much Do I Need to Retire?
The short answer is that a lot is needed. However, you shouldn’t feel overwhelmed by saving and planning for retirement. If you’re feeling unsure, just remember that many people have done this before you. You are not the first, and you do have plenty of resources to help you. That includes us. Before you start saving, you have to know how much you need. Let’s break down what you need to know about the amount you should have to retire.
What Do I Need To Know Before I Start Saving?
As you probably expected, the amount that you should save is entirely dependent on your plans. If you don’t have any retirement goals, you should start thinking about them now.
- You should think about when you want to retire.
- Are you looking to retire when you’re 65 or 50?
- You should know how you want retired life to be.
- Will you travel to exotic places or live your days out in a cabin? Will you have additional income streams other than your retirement account?
- You should know when you’re going to start saving.
- Are you starting when you’re 20 or 40? It’s always better to start saving early.
- Even if you are older, it is never too late. Even just a few years of savings could help you in the long-run.
How Much Should I Save For Retirement?
If you’re young, we recommend that you save at least 15% of your paycheck every year. Some people prefer to take 15% of each paycheck, while others prefer to take a considerable chunk out at the end of the year. We highly recommend that you take some amount from each paycheck. There are two advantages to this:
- You won’t feel the money leave your account.
- If it’s a small amount from each paycheck, you may not even notice that it is leaving. It can be disheartening to take a large chunk of money out of your account at once.
- You’ll have more money in your retirement savings account for longer.
- Even just a few more months in a savings account can mean significant savings over time.
If you put your money into your savings account as you earn it, most of your payment will have already been gaining interest for a few months by the end of the year. If you wait to put your money in your savings account, you’re losing months of precious gains. If you’re older, you will need to save even more every year. You should make sure that you have enough in your retirement account to cover at least 55% of your preretirement income. Making this amount of more can help you maintain your preretirement lifestyle.
When Should I Start Saving For Retirement?
The sooner you start, the more effortless saving for retirement will be. As we explained, you want your money to be in a savings account for as long as you can.
The longer the money is in a savings account, the more interest you earn on it. Most experts recommend that you start saving when you’re about 25 years old. However, you may want to start some sort of retirement savings account the second that you have income.
Even if you’re 20, you can start a retirement savings account. You could save $200 a month to start. Even a small addition when you’re younger can turn into a significant return as the years go on. For example, a 25-year-old saving 15% per year equates to a 35-year-old saving 23% per year.
So, if you’re an adult who has an income, you should start saving for retirement right now.
Do I Have Enough For Retirement?
If you have already saved some money for retirement, you may be wondering if you have enough saved. This requires some math, but it is entirely doable. We recommend that you stick with the 15% per year rule. Remember that this rule applies if you start saving at the age of 25 years. With these in mind, you should take these steps.
- Know your yearly salary before tax as well as how old you are.
- We hope that the second one is easy. You should also know how much you have already saved up for retirement.
- Multiply your yearly salary by 0.15. This will give you 15% of your annual income before taxes.
- Now, take your age and subtract 25 from it. (If you’re younger than 25, you probably shouldn’t worry about if you have enough in your retirement account. Although, we do encourage you to follow the 15% rule.)
- Take the number that you got from step three and multiply it by the number you got from step 2.
If the number that you calculated in step four is smaller than the amount that you currently have saved for retirement, you’re in good shape. If the number from step four is larger than the amount that you have saved, you have some catching up to do.
For example, let’s say that you make $45,000 a year at 35 years old. You have $65,000 in your savings for retirement in this example, too.
- Your yearly salary before tax is $45,000 per year. Your age is 35 years. You have $65,000 saved up for retirement.
- $45,000 x 0.15 = $6,750
- 35 years – 25 years = 10 years
- 10 x $6,750 = $67,500
- $65,000 < $67,500
In this example, you would need to save more in your retirement account. If you increase your savings rate, you can catch up to the suggested 15% of savings. We should also note that some people decide to save 20% or even 25% of their income to get ahead financially.