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Retirement is often thought of as a concern far into the future. It’s easy to keep pushing your date that you say you’ll start “saving” further and further into your future.
How Can I Save For Retirement
But the truth is, now is the time to start saving for retirement. Time moves faster than you might think, and you always have an excuse not to put money away: a new car, student loans, or a new house. “The less you save now, the more you will have to save later” may be an obvious statement; however, recent graduates tend to underestimate it. We understand that it can be hard to get motivated to start saving, so here are six tips to get you into the retirement saving mindset!
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1. Be a goal setter. Set and track your goals with a clear timeline in mind. According to CBS News, nearly two-thirds (65 percent) of millennials said they will work until age 65 or later, and half report that they plan to work in their retirement years. [1] So, setting that goal of a specific retirement age will ultimately determine how much you need to start saving. Check out our retirement calculator for a starting point.
2. Start saving NOW. It may feel like you have plenty of time before you need to start saving for retirement; however, the sooner you start saving, the better. The difference between numbers saved in your paycheck starting at age 25, compared to 35 is amazing. Don’t wait until you’re 35 to start saving for retirement.
3. Open a retirement account. Opening a retirement account can be intimidating; it is money that will not be available to you, even if there is an emergency. According to CBS News, nearly three-quarters (72 percent) of millennial survey respondents said they are saving for retirement in an employer-sponsored retirement plan or outside of work. The median amount they save is 7 percent of their annual salary. [1] The truth about saving for retirement is not as scary as it sounds and by putting your contributions on autopilot, your funds will add up quickly. Especially if your employer offers a contribution matching program for your 401(k).
4. Multiply. “Don’t put all your eggs in one basket” holds true for the world of finance and retirement savings. As you save for your golden years, be sure to spread your savings across multiple mediums. For example, consider investing in a low-risk option such as a mutual fund.
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5. Reduce consumption. By cutting back on extra expenses like entertainment and eating out, you can influence the amount you save. This allows you to set aside that change for retirement. Using your rainy day fund instead will thank you later. You can use online tools, such as Money Manager, to keep a close eye on your savings.
6. Call a friend. Knowing when and how to retire can be difficult to determine. A consultation with an Investment Advisor can help determine retirement goals that are right for you. Central Bank Investment Advisors will review your current economic situation to set up a retirement plan that fits your budget, so you’re saving at a pace that’s comfortable for you!
Life flashes before your eyes and the next time you blink it will be time to retire. Don’t be caught unawares. Start saving now so you can enjoy later.
The information provided in these articles is for informational purposes only. It should not be interpreted as the opinion of Central Bancompany, Inc., and/or its subsidiaries and does not imply endorsement or support of any of the information, products, services or providers mentioned. All information presented is without representation, warranty or guarantee as to the accuracy, relevance or completeness of the information.
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Do you need to save? Unfortunately, that is difficult to answer. In fact, according to a survey this year by Bankrate.com, more than six in 10 Americans don’t know how much money they should have in their retirement accounts before they say goodbye to the workforce for good.
If you’re not sure how much to save, there are several ways you can calculate your magic number. Here are three of them:
Many financial advisors recommend putting 10 times your final salary into retirement. So, someone with a pre-retirement salary of $20,000 would need $200,000, and someone with a salary of $60,000 would need $600,000.
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If you take this approach, you would need to estimate your final salary. If you assume that your income will increase by about 2% each year, you can get a good idea of what your salary will be when you retire. Just start with your current salary, add 2%, then add 2% to that number and keep going for whatever years you have until retirement.
Say you earn $41,000 and are 10 years away from retirement. You would be making close to $50,000 by the time you are ready to leave work. So, using this metric, you would need to save about $500,000.
The 4% rule is intended to ensure that you don’t take too much out of your retirement accounts and end up broke. If you follow the 4% rule, you’ll take 4% out of your retirement account the first year you retire. Then, increase withdrawals by the rate of inflation each year.
You can use the 4% rule to set your retirement savings goal by working backwards. Most experts recommend that you need around 80% of your pre-retirement income each year in retirement – although this may be too low for some retirees. Assuming you need 80% and Social Security replaces 40% (which is what it’s designed to do), you’d have to make up the other 40% with the savings you have
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You need to calculate how much of a nest egg you need so that a 4% withdrawal in the first year equals 40% of the pre-retirement salary. If you expect your pre-retirement salary to be around $50,000, then $20,000 would be 40%. Now, figure out how much money you would need to draw down 4% back on your $20,000. You can do that by multiplying $20,000 by 25. This calculation shows that you would need to have $500,000.
Use this calculation with any income you want to have in retirement. If you think you need 100% of your pre-retirement salary, Social Security will only take out 40% of it. You would need to find the remaining 60%, or $30,000. Multiply $30,000 by 25, and you will need $750,000.
If you want to keep your lifestyle pretty much the same in retirement, you can get a good idea of how much money it would take. Just look at what you’re spending now, subtract for any expenses that will go away, and add in the expenses you might have as a senior.
If you currently spend $45,000 a year but $13,000 of that goes to your mortgage, which you plan to pay off, you would need about $32,000 to make ends meet – to live like the majority. However, you’ll need to put money into health care (the average retiree spends about $4,274 on premiums and out-of-pocket costs each year). And you may want to set aside extra money for travel and hobbies.
How Much You Really Need To Save For Retirement
If you wanted about $3,000 a year for travel, this would mean you would need almost $40,000. Use a calculator to adjust this number for inflation and figure out how much Social Security will provide. Then, you will know what you need from your savings. Multiply this number by 25 (assuming you follow the 4% rule), and you’ll know what your goal should be.
Now you know a few different ways to calculate your retirement nest egg
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