How much should I save for retirement? This question comes up more and more as people approach retirement age. You rarely hear this question from people who have just started out their careers. However, the best time to ask yourself “How much I should save for retirement?” should be as early as possible.
It may seem absurd to be already planning for your retirement when you have barely begun enjoying your career and the benefits of it. At this point, you might be more concerned on paying off your student loans and making ends meet rather than saving up for retirement.
However, nobody is asking you to break the bank in planning for your retirement. When you start saving up for early, that means you can reach your target retirement savings by accumulating money in smaller increments.
Only you can answer the question “how much should I save for retirement?” The standard of living you want to live during your retirement years determines the figures you have to save up for.
If you want to take a world tour and retire in style, then it would follow that you would have to save a larger amount of retirement money.
Financial planners suggest that you should be saving up an amount of money that is 25 times your expected retirement expenses during the first year of retirement in order to live this kind of life minus the amount of money you will be receiving from you social security and pension plans. You wouldn’t have to worry that you will be outliving your retirement money because you won’t be.
By accumulating a retirement savings that is 25 times more than what you actually need for that first year, you still have a lot of room for a comfortable lifestyle, not to mention increases in cost that you will face due to inflation. You are basically touching only 4% of your retirement savings each year. However, saving that kind of amount may be a bit too ambitious, especially if you have only started planning for your retirement in your 40s. That leaves you with less time to save up for your target amount. You wind up playing catch up on the years you have missed saving so by this time you have to cut back a larger amount off each pay cheque in order to reach your target retirement savings.
However, if you are content to live in a more modest lifestyle, that is, a standard of living that is quite below than what you are living as of the moment, you only have to save around 75% – 85% of your pre-retirement income. Social security plus pension plans could provide you with 20%- – 40% of your retirement savings. Hence you only have to raise half of your target amount. Yet, in order to answer “how much should I save for retirement?” each time your payday comes all depends on how early or late you have started saving up for your retirement.
The earlier you start saving, the amount from each pay cheque that goes into your retirement savings will be smaller since you have more time to save up. You would hardly feel it. However, if you start saving up late, you may end up cutting back a lot on each payday and that is something you would really feel. “How much should I save for retirement?” Only you can answer that, with a little help from financial planner of course.
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