Knowing how much you need to have saved for retirement may feel a bit like trying to look into a crystal ball. There are some things you can do to properly plan to ensure you have what you need financially when you retire.
“Do I have enough saved to retire?” That is definitely one of the top five questions I am asked when I begin meeting with a new client. And, like most things, there is no one easy answer to this question because the answer is dependent on multiple things.
A good place to start is to create a financial plan to help you understand and prioritize your financial goals for retirement. It helps you focus on answering the following questions:
- At what age do you want to retire?
- What percentage of your current income do you want in retirement?
- How much do you have saved?
- How much per month are you saving?
Once you answer these four questions, a goal calculator will determine how much you will likely need, how much you likely have available and whether or not you are on track. Give it a try!
So, let’s break down these four questions a little further.
At what age do you want to retire? The sooner, the better, I know! But, the longer you can wait, the better off you will be, especially when it comes to Social Security. And, as far as sooner rather than later goes, a good rule of thumb is to save at least 15% of your pre-tax income each year from age 25-67. This 15% can be a combination of your contribution to your 401(k), your employer’s contribution and if you are lucky enough to have a pension, your target savings rate may be lower. What is important, is you start with what amount you can and diligently work on increasing that amount until you reach 15%.
What percentage of your current income do you want in retirement? The standard benchmark here is to plan on needing 80% of your pre-retirement income after you retire to maintain the lifestyle you are accustomed to living. This is a good benchmark, but again, there are several variables that could adjust this percentage. Do you plan on traveling a lot? Have an expensive hobby? And if you are planning on retiring before 65 and won’t be able to keep your employer’s health insurance, you will need to plan on paying that premium out-of-pocket.
How much do you have saved? Not to beat a dead piggy bank, but it’s true, the single most important thing you can do is to start saving as early as you can. Start saving at 25, and you can plan on needing to put away 15% of your income each year. Wait until you are 35, and the percentage can be more in the neighborhood of 25%. If you have put off saving for retirement because of other pressing financial demands, you are not alone. Don’t despair, there is still time to get things in motion. In fact, so many people are in the same boat, the tax law allows for additional catch-up contributions to retirement accounts if you are age 50 or older.
How much a month are you saving? Make sure you are doing what you can to make the most of what you are setting aside each month. You can gain great tax advantages by participating in your employer’s 401(k). Roth IRAs and 401(k)s and contributing to a health savings account (HSA) if you have a high-deductible health plan are also good tax saving strategies. Make retirement planning and saving for retirement a priority. There are always going to be demands on your income, so it boils down to prioritizing how you are spending your money. This struggle will pay you many dividends (or interest, depending on your risk tolerance, but that is for another blog post 😊) when you are ready to live your retirement dream.
Need help getting on solid footing with your financial plans for retirement? Start here.
The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.