How Much Should You Save for Retirement
Have you started saving for retirement? Finance experts recommend starting as soon as possible. However, if you haven’t started, that’s okay! There are strategies to get your finances in order and your savings on the right track.
Previously, we broke down the best time in your career to start saving for retirement. Now, we will discuss how much you should actually have saved. (And as always, we recommend that you speak with a financial advisor about your specific financial situation and goals.)
Making Personal Retirement Plans
The Balance said it best when they stated, “… personal retirement plans are meant to be personal. Determining how long you plan to live or if you are you going to project a short life expectancy due to serious health issues can drastically change your future retirement needs.”
Whatever plan you make, must be catered to how you plan to live after retirement. Would you plan a vacation based on what your neighbour would like to see? No! Just like personalizing the perfect vacation for you, your retirement savings plan should reflect how you plan to live, whether or not you’ll have a part-time job, etc.
Here are a few questions you should ask yourself when setting your retirement goals.
What age do I want to retire?
The average retirement age in the U.S. is 62-years-old, likely because this is the earliest age you can receive Social Security benefits. Nonetheless, some workers find they have enough to retire by age 57, or sooner if they sell a business or inherit money.
Delaying retirement, even by a few years, can make an exponential difference in your savings. If you’re married, you will also need to take into account when your spouse is likely to retire.
How long do I expect to live after retirement?
Although this isn’t the most pleasant conversation to have, it’s crucial to your savings goal that you plan out enough money for the length of your life. Do you, or your partner, have health issues? Will you eventually need long-term care?
The type of care (in-home or assisted living), state, and possible medical needs could potentially drain your savings. It’s impossible to predict every potential need that could occur after you retire, but it’s best to over-prepare than live in debt.
How much monthly income will I need to maintain my current lifestyle?
According to Investopedia, the average monthly (Social Security) benefits for a retired worker in 2018 was $1,413 per month. For some, this may be enough to live on. However, for others, you’ll need to invest time and research into the amount you will need each month after you retire.
How much do you spend on groceries? Bills? Other living expenses? Vacations? If you’re already savvy with your finances, a savings calculator will be a great additional resource. If you’re not really sure where to begin, a financial advisor could be the best route for you to take while you still have time.
The Retirement Savings Rule of Thumb
So, you know you need to save. You think you have room in your budget to set some money aside… Now how much do you actually need to have saved? Fidelity uses a simple equation to determine this magic number.
By the time you turn 67, you should have 10x your annual salary saved.
This may seem somewhat staggering at first, but when you break it down into smaller periods of time, it may be easier than you originally thought. For example:
- By the time you turn 30: Have the equivalent of 1x your salary saved
- 40: 3x your salary
- 50: 6x your salary
- 60: 8x your salary
- 67: 10x your salary
Remember, these numbers are just a loose guideline for those looking for someplace to start. If you’re looking for a plan specifically based on your plans, speak with a financial advisor.
Keep Track of Your Finances
Are you on track right now? Recent studies show that only 26% of workers with a retirement plan feel very confident about the amount of money they (and their spouse) have saved for retirement.
If you’re confident in meeting your goals, that’s great! If you aren’t, what are your next steps to becoming financially stable in your late years? Consider:
- Contributing to a 401(k), if eligible. These accounts allow you to contribute pre-tax money, which will allow you to invest more.
- Opening an IRA account. Choose from a Traditional or Roth, depending on your current and future financial goals.
- Automate your savings.
- Reigning in your spending and set strict limits.
- Taking advantage of the equity in your home. If you’re on a fixed income or looking to make a significant addition to your finances, a reverse mortgage refinance* might be for you.
Do you have questions about what homeownership will look like for you during retirement? Contact a Mortgage Advisor today.