The retirement world often seems like it will never happen, happening miles down the road, when you are older or when you will finally have it all figured out. The thing is however, the sooner you begin to consider how much you are going to have to save, the happier the you of future might be. It is not only the 40s or 50s people who need to plan their retirement. It helps anybody seeking peace of mind, freedom and a lifestyle that is not tied to a paycheck only.
It does not require you to meet a single amount of money to know how much to save towards retirement. It is about knowing what you want, the income you have, and a lifestyle you wish to lead once you retire. What is the good news? It is not necessary to be a financial specialist to get started.
We can now take a step-by-step examination of how much exactly you are supposed to save, what should and can be taken into consideration, and how all that can be planned down to the number that is truly practical.
Why You Need to Save Retirement
Before making a plunge into the figures, it is necessary to discuss the importance of saving on retirement:
- You are not going to be working forever. Though you may enjoy your job today, you will come to a point that you will want to stop or even need to stop.
- Expenses on living do not evaporate. However, you will still have to bear the costs of housing, food and healthcare among other costs, even though you are not working.
- Save early and have an easier time. With the power of compound interest, the relatively little money put aside at a young age increases exponentially.
- You desire to be a free person. Retirement is all about alternatives. The sphere of your potential life-choices will be the greater, the more you were able to save.
Related: 10 Smart Ways to Save for Retirement
So What is Your Savings Rate?
There is no universal question, and here are some general recommendations that experts tend to provide.
1. Lay aside 10-15 Per cent of Your Pay
Save 10 to 15 percent of your annual gross income when you are in your 20s, probably the advice that is most repeated. It also comprises any match your employer may provide in the form of a retirement plan with your job.
However, should you begin later in life, you may be required to make a bigger percentage as a contribution.
2. Shoot at 25 Times per Annum Expenses
Yet another method of ascertaining your retirement saving target is to determine the amount of money you require in order to live on annually and then just multiple it by 25. This rule is grounded on the fact that a safe withdrawal rate would be around 4 percent of total retirement savings per annum without exhausting your money.
Thus, when you believe that you will need 40,000 in retirement per year, then your target will be:
40,000 × 25 = 1,000,000
This will provide you with an approximate target that you can aim at depending on the desired lifestyle.
3. Adhere to The Age-Based Benchmarks
Other financial experts including fidelity may advise that you save some multiple of your salary at a specific age:
- At 30 years: Save 1x of your salary per year
- At age 40: Save 3 times your pay
- At 50 years of age: Save 6 times your salary
- At age 60: Save 8 times your pay
- At 67: You should have saved 10x your salary
Assuming your earning is 50,000 dollars per year your ball park will be saving 500,000 dollars by the time you will retire.
Related: 10 Rules Of Money
The Most Important Things That Influence the Amount You Will Need Are:
1. Your Retirement Position Of Life
Would you like to travel around, have a large house or a smaller city with low expenses? Your needs depend largely on your lifestyle choices.
Planning to live simple will require less in case you do. When you are going to discover the world, you will require even more.
2. When You Are Going to Retire
The younger you wish to retire, the more will you have to save, as you will have to continue living off of the savings that you just made.
Retiring 10 years earlier at 55 rather than 67 implies having to account 12 years of living at a retired age without income.
3. Living Conditions Will Be in Saint Petersburg and Moscow
The costs of living also differ in terms of places. Areas in big cities tend to be more expensive but the rural areas could be affordable. Consider housing, healthcare, transport and even tax.
4. Life Expectancy
No one knows the future but in order to live longer, the more savings you will require. To err on the cautious side it is always safe to assume that you need 30+ years of retirement.
5. Inflation
In time, money decreases its value. An item which currently costs 1,000 is by the time in 10-15 years, going to cost 1,500. That is why your savings should increase to meet the inflation.
Starting to Save up Retirement
1. Take out a Retirement Account
One of these typical types will be enough to start with:
- 401(k): Most employers offer them; you can contribute to them using before-tax dollars, and most employers will match your contribution.
- IRA (Individual Retirement Account): This is the most common of retirement plans; there are two basic types of IRA: Traditional (pre-tax) and Roth (after-tax).
When your job includes a matching program, be sure at all times to contribute at least an amount that will earn the complete match, which is something for nothing.
2. Automate Your Saving
Put in place automated deductions to save some of your paychecks into your retirement account. You will not miss the money and it keeps you consistent.
3. Contributions Should Be Increased With Time
There is no need to get stressed because you might not bear 15% at once. Save five percent and a tad more with every year. Each step is an improvement.
Errors to be Prevented
1. Waiting Too Late to Begin
The sooner the better your money will grow. Waiting to be paid more or have more stability is not the way to go, it is whatever you can.
2. Living on Social Security
Social security will assist you, but it is not enough to finance all your needs. And it is advisable to consider it as your secondary source of revenue rather than your primary one.
3. Early Withdrawal of Your Retirement Account
Withdrawing funds in advance of retirement is charged with taxation and penalty—and cuts off your future. Attempt not to dip into those savings unless you find it a real emergency.
4. Failing to Make More Contributions
Your contributions have to increase with your income. Lifestyle inflation should not hold you back in making your future.
What Do You Do in the Case That You Started at the Wrong Time?
Don’t panic. One should never be late to start savings. The following is what you can do:
- Saving a greater amount of your earnings
- Reduce costs and save firstly
- A year or two of retirement later
- Use catch-up contributions, in case you are 50 years old and above (additional allowable limits to retirement accounts)
Calculators on Retirement
The free online calculators are abundant that assist you in estimation of your needs and how much to save monthly to achieve them.
These calculators take into account your age, how much you now have saved up, at what age you might be expecting to retire, and what your lifestyle would require. It is a fast method of clarification and establishing an individual goal.
Final Thoughts: Your Future Starts Now
You do not want to be so concerned with a number that you are saving to retire; you want to be purchasing your own freedom. Plan to go anywhere you want to see, visit your grandchildren or sit down and enjoy by not having to think about the money, every dollar you are putting aside now is a step towards how you want to spend that money.
You do not necessarily have to be rich or perfect. The only thing you have to do is to keep going. Begin with small amounts, remain regular and save more when you expand. The quantity is not the most powerful thing but the time and discipline that went along with it.
Then, how much will it cost to retire? To be able to live comfortably as you please. The fact is; are you prepared to begin working on that today?
Save the pin for later
