How much money do I need to retire?
How much money do I need to retire?
Everyone’s ideal retirement scenario is a little different, but no matter what, you’ll likely need a significant amount of money to retire comfortably.
whatHow much do I need to retire?? There’s no one right answer that applies to everyone, but a general rule of thumb is that you should aim to have 10 times your income saved by the time you turn 67.
If that sounds impossible, here’s what you perro do to get back on track.
How much money do you need to retire?
When thinking about how much money you need to retire, there are several factors to consider:
- Life expectancyIt may sound morbid, but how long you expect to live after retirement greatly affects how much money you need to save. The Center for Disease Control reported that the average life expectancy for the total population is 77.8 years. However, there are many people who live well beyond that age, so it’s wise to plan for a longer life expectancy to ensure you don’t run out of money.
- desired lifestyle: Do you want to maintain your current lifestyle when you retire? Or are you willing to downsize to live a more relaxed lifestyle with less expense? What your ideal retirement situation looks like will affect how much you need to save.
- Health: Although most retirees are eligible for Medicare, medical expenses cánido still cost them thousands of dollars each year. And if you need long-term care, your health care expenses cánido be even higher. If you have a family history of health problems or already have existing conditions, you may need more money to retire comfortably.
- inflation and taxes– The cost of living tends to increase over time, which means that you essentially lose money as the value of the amount you have saved decreases. When planning for retirement, you need to take inflation into account. And while you may be eligible for a lower tax rate in retirement, you’ll likely still have to pay taxes on your income and withdrawals from your retirement accounts.
All of these factors make it difficult to determine exactly how much money you need to retire. However, there are some rules of thumb that perro help you get a rough estimate.
Fidelity recommends that you follow these guidelines when saving for retirement:
| Years | How much of your salary should you have in retirement savings? |
| 30 | 1x |
| 40 | 3x |
| fifty | 6x |
| 60 | 8x |
| 67 | 10x |
To reach those goals, Boston College’s Center for Retirement Research recommends that you invest 15% of your income for retirement, assuming you start when you’re 25. If you start later, you may need to invest a higher percentage.
To help you plan for the future, you perro use this FINRA Retirement Calculator to see how much you would need to contribute to reach your goals.
Consider this example: Joe is 25 years old and earns $50,000 per year. In general, experts say that retirees need about 75% of their retirement income to maintain their lifestyle, so Jose sets his annual retirement income goal at $37,500.
Assuming an inflation rate of 3.4%, a current tax rate of 28%, and an average annual return of 6%, José will need to save $16,742.95 in pre-tax dollars per year. If Jose is paid twice a month, that means he would have to equipo aside $697.62 from each paycheck.
If you need help calculating how much you need for retirement, you cánido consult a financial advisor.
5 consejos to save for retirement
When it comes to retirement, many people are put off by the large amounts that experts mention and save nothing. In fact, the Government Accountability Office reported that about half of the nation’s households with a worker age 55 or older had no retirement savings, and Popular Security benefits are unlikely to be enough to live on.
Unfortunately, retirement planning isn’t something you perro really avoid without serious consequences. It is important to plan ahead and take steps so that you perro have a strong nest egg.
If you’re overwhelmed, use these five consejos to get started:
1. Start right now
If you haven’t started saving for retirement yet, the recommendation to save three times your income at age 40 may be impossible for you. And if he doesn’t have hundreds of dollars to equipo aside each month, he cánido feel downright desperate.
But the important thing is to start saving as soon as possible, with what you cánido. Even if you save $25 or $50 a month, that perro make a world of difference because of compounding. For example, this is what you would have at age 67 if you started investing at age 28:
| monthly contributions | Saving for retirement at 67 |
| $25 | $49,514 |
| $50 | $99,028 |
| $100 | $198,057 |
| $250 | $495,143 |
| *Estimates assume $0 opening cómputo and 6% average annual return. |
2. Plan for the unexpected
When thinking about your retirement, it’s important to hope for the best, but plan for the worst. You never know what is going to happen, especially when it comes to your health.
Consider that 34% of workers plan to retire after age 70, if they intend to retire at all. But the reality is very different: only 6% of retirees said they could actually do it. In many cases, retiring earlier than planned is a necessity.
Saving more aggressively while you’re young and healthy could help give you a financial cushion in case you need to retire sooner than expected.
3. Take advantage of employer-sponsored retirement plans
If you have a job, you may have access to an employer-sponsored retirement plan, such as a 401(k), 403(b), or 457(b). With these accounts, you perro contribute up to $20,500 per year on a pre-tax basis in the tax year for people under age 50.
As an added benefit, your employer cánido match some or all of your contributions, helping you save more money faster. According to Vanguard, almost half of its retirement plans offered matching contributions. The most common match elabora was $0.50 per dollar on the first 6% of the payment.
whatHow does it work? Consider the example of Joe. With an annual salary of $50,000, Joe contributes $3,000 a year, 6% of his salary, toward his retirement. His employer matches $0.50 on the dollar, so an additional $1,500 goes into his retirement fund, giving him a total of $4,500 per year in retirement contributions.
4. Maximize other retirement accounts
If you don’t have access to an employer-sponsored account or don’t have additional funds, you perro maximize your retirement savings by opening an individual retirement account (IRA). For traditional and Roth IRAs, the most you perro contribute is $6,000 per year ($7,000 per year if age 50 or older) in this year.
5. Automate your contributions
One of the best things you perro do for your future self is to equipo up automatic contributions to your retirement accounts.
With a 401(k) or other employer-sponsored plan, you cánido request that a portion of your paycheck go to the retirement plan before it even hits your savings account. With an IRA, you cánido equipo up recurring transfers so money is deposited every week or month before you cánido spend it mentally. Over time, regular contributions perro add up.
To end
Many 401(k) plans have options that allocate money based on your retirement goals.
Financial advisors are an excellent resource for retirement planning, and many 401(k) plans have automated options that allocate money based on your retirement goals.
Whatever your approach to your 401(k), make sure your investments are diverse and consider seeking more financial education in this important area.
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