One of the questions that arises when you think about retirement is deciding how much money will you need to retire comfortably.
There is no easy answer to this question. No one amount is sufficient for everyone as different people have different needs.
One factor you can look at is your current income and the lifestyle you want to maintain when you retire.
Research suggests that most people who have a 401k policy believe they will need an average of $1.7 million dollars, but sadly few people are able to save this much.
There are many causes to this problem. Getting better at saving can have a huge impact on your retirement fund. Let’s discuss this in more detail.
Saving vs. Investing
Research conducted by Schwab Retirement Plan Services shows that up to 64% of people consider themselves a saver and not an investor.
As a result, a significant number of people usually opt to put their additional retirement savings in a lower-paying savings account. Investment accounts such as IRA brokerage accounts have a much higher turnover in comparison.
Most people who hold a 401k account tend to have a passive approach to savings and investments. According to the same study, around a third of the people have never upgraded their accounts. Additionally, 44% of the people have never made a change to their investment choices.
Most investment accounts like 401k and IRAs require regular monitoring to help them grow. The best way to go about doing this is by seeking the help of a life and financial planning professional.
Around 95% of the survey participants stated that they would be significantly more open to investing with a help of a professional, while only 80% stated that they would consider doing it on their own.
How Much Do I Need to Retire?
Most experts believe that your yearly income in retirement should be around 80% of what you earned before retiring. For example, if you earn $100,000 per year while employed, you should have an income of $80,000 annually to live a comfortable life.
This is not set in stone though. The variables can change depending on other sources of income you may have. This includes things like pensions, social security, and any part-time income opportunities.
Certain factors that may increase your need for savings should also be considered. This includes things like your health and the kind of life you want to live in retirement. For example, if you plan on traveling, it is wise to factor this in.
Retirement Savings by Age
One thing that can help you save better is knowing how much you should put away at different stages of your life.
Dividing your savings by the percentage of your salary can be a good starting point. Fidelity suggests that your annual salary should be equal to your savings when you are 30 years old.
To achieve this, you will need to start saving 15% of your salary from the age of 25 and invest half of it in stocks.
Additional guidelines by fidelity are as follows:
- Have twice your annual salary saved by age 40
- Have four times your annual salary saved by age 50
- Have six times your annual salary saved by age 60
- Have eight times your annual salary saved by age 67
If you can afford extra savings, there is also a more aggressive formula that will see you save 25% of your annual salary compared to 15 percent.
The guidelines for the aggressive method are as follows:
- Have two times your annual salary saved by age 35
- Have three times your annual salary saved by age 40
- Have four times your annual salary saved by age 45
- Have five times your annual salary saved by age 50
- Have six times your annual salary saved by age 55
- Have seven times your annual salary saved by age 60
- Have eight times your annual salary saved by age 65
What Can Change Your Retirement Income Needs?
There is no possible way to know how events in your life may affect your retirement finances.
The following possibilities may play a role:
- Health Issues
- Debt Payments
- Market crash
- Family members who may be dependent on you
- Estate planning considerations
There are ways you can get around these issues by proper planning and lifestyle adjustments.
Many factors go into planning for retirement. Everything from upfront costs to unforeseen circumstances have to be accounted for to make the process easier.
Make sure to enroll in a 401k policy if possible and keep an eye open for savvy investments and ways you can save money to get the most out of your retirement.
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