Simple question with a complicated answer. General rule of thumb on how much you should save for retirement is 10% of your pay from the time you are about 25 years old until normal retirement age of 65. Below are some key considerations.
Above all, the most important thing to remember is that the earlier you begin, the more likely you will be “retirement ready”. This is the ultimate goal when thinking about how much you need to save, will YOU be RETIREMENT READY?
WHAT IS RETIREMENT READY?
RETIREMENT READY means that you will be able to retire at a reasonable age and have enough resources to replace your income and maintain your current lifestyle. For many, this is what they desire. You may fit into this category or you may need more or less income in retirement depending on your goals.
WHAT ARE YOUR GOALS?
Furthermore, your goals should be a key driver in determining your savings amount. If you know that you will want to do expensive things in retirement, such as travel or buying a second home, then you probably need to save more than the recommended 10%. You may need to get closer to 15%-20%! That takes real commitment and purpose but, again, the earlier you start, the better chance you have for success.
START LATE? YOU CAN CATCH UP!
Conversely, the later you start, the more you need to save. Let’s say you don’t start saving until you are 35 years old, then you probably need to get closer to the 15% savings rate to catch up. Compounding is a powerful tool, so that lost 10 years really takes a lot of work to overcome. Its possible, but keep your goals in the future and remember why you are doing it. You don’t want to work forever, right??? And remember, at age 50, you are allowed a CATCH UP contribution to your company retirement plan and to your IRA.
So, while there is no ONE SIZE FITS ALL, a good rule of thumb is at least 10% if you start in your 20’s and get closer to 15% if you get started later.
ASSEMBLE YOUR TEAM!
As with anything in life, interview multiple professionals and find the team that you trust. Don’t let anyone tell you that one size fits all or that one product will solve all your needs! Work with a team of Fiduciaries that have your best interests in mind and you know don’t benefit from selling you certain products or making you work with other professionals.
Good luck and happy Financial Planning!
Ryan Oates, MBA, CPFA
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.