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Most people dream of a relaxing retirement. Maybe it’s a day spent playing golf with friends, traveling the world, or just living comfortably without having to work or take care of other unwanted tasks.
But how much does it cost to achieve these goals? According to 2022 Retiree Thoughts Survey According to the Employee Benefit Research Institute, 70% of retirees wish they had saved more or started investing sooner. If you want to make sure you don’t share the same feelings of regret when you retire, there are a few simple steps you can take now.
There are several online tools that can help you budget, manage your expenses, and take control of your retirement savings. But what works for you may not work for others – start preparing today and find out what works best.
If your main focus is retirement planning, you need to know some basic information.
How much should you save for your retirement?
More experts say you can expect to spend up to 80% of your usual salary each year in retirement. So if you are currently earning $75,000, you can roughly estimate that you will need at least $60,000 a year to live on once you leave the workforce.
It’s not an exact science, however. The best way to calculate your retirement savings is to estimate your expenses and work backwards. In other words, make sure you have a retirement plan in place.
“There are two types of expenses — committed and discretionary,” says Peter Casciotta, owner of Lee County Asset Management & Advisory Services. “Incurred expenses are expenses over which you have little or no control, such as a mortgage, property taxes or electricity. Discretionary expenses are expenses over which you have more control, such as meals, entertainment and gifts.”
Once you have an idea of these, namely which ones you plan to continue until retirement age, you can then more accurately estimate what you will need to get by. A financial advisor can also help you stay organized.
Keep in mind: You will not withdraw all of your money from savings or retirement accounts such as a Roth IRA or 401k plan. You will also most likely receive Social Security payments and you may also have a pension or other source of income. According to the tax, the average retiree receives just under $1,200 a month in Social Security benefits. look at this IRS tool to get an idea of what you could earn in Social Security after you retire.
Recommended retirement savings by age
The exact amount you will need to save varies according to your income and your expected retirement expenses. Fidelity Investments – a leading investment and financial services company – recommends membership in the follow the general goal posts:
- 30 years: your annual salary
- 35 years old: 2x your annual salary
- 40 years old: 3x your annual salary
- 50 years old: 6x your annual salary
- 55 years old: 7 times your annual salary
- Age 60: 8 times your annual salary
- 67 years old: 10x your annual salary
If you earn $75,000 a year, that would mean you would need to save $225,000 at age 40, $450,000 at age 50, and $600,000 at age 60.
Steps to Retire Now (Any Age)
If you haven’t started saving for your retirement yet, now is the time. As Jill Fopiano, CEO of O’Brien Wealth Partners explains, “The best time to start saving is as early as possible to maximize the compounding effect.”
Compounding refers to the interest you earn as your investments and savings grow. As interest is added to your balance, it also increases the amount of interest you earn annually, so the sooner you can start, the better.
Here are some simple steps you can take right now:
- Open a retirement account if you don’t already have one: You have many options to choose from. Your employer can offer a 401(k) with a matching contribution, or you can open a Roth or traditional IRA. In many cases, you may want both.
- Automate your contributions: Figure out how much you can comfortably put away each month and set up automatic contributions of that amount. Reassess these contributions every year to make sure you are contributing as much as possible.
- Maximize any matching employer: If your employer offers matching contributions to your 401(k) account, try to maximize them. It’s basically free money and can help with compound interest.
- Consult a financial advisor or investment planner: The EBRI survey shows that retirees were less likely to feel financial regret if they worked with a professional. In fact, nine out of 10 retirees who worked with a financial advisor said the value outweighed the cost. Many employers also offer financial planning advice (or their plan administrators do), so check with your benefits office before paying for outside services.
Financial advisors generally recommend saving about 15% of your income each year. If you can’t contribute right away, start with a lower amount and gradually increase it over time.
Whatever you do, avoid borrowing from your 401(k) or other retirement accounts unless absolutely necessary. This will not only deplete your retirement savings, but it could also lead to high anticipation. withdrawal penalty.
Don’t neglect other financial aid
Saving for retirement is just one part of smart financial planning. There are other sources of income that you could potentially tap into after you stop working that you should be aware of.
Life insurancewhether it be integer term Where another guy, can offer unique and secure financial protection. Although traditionally known to provide beneficiaries with an agreed lump sum of money on the death of the policyholder, there are cash elements that can be used while they are alive, depending on the policy. You may even be able cash in a policy if necessary. Although not a traditional source of retirement funds, it is something to consider. Just remember: life insurance can be inexpensive or it may be a bit more expensive, depending a variety of factorsthen shop around for the best rates and conditions.
Other options that might help include the 401(k) plan or even high yield savings accounts to earn additional interest. And for older owners, a reverse mortgage could become a reliable source of income (assuming sufficient home equity).