Simply How Much Do I Need to Save for Retirement Life?
Today, on Redhead Mom, I’m sharing a partnered guest post about how much you need to save for retirement life.
Many working people struggle to save for their retirement life, but they do not know how much they need for their happy life once they walk out of their offices. They cannot tell a magic number for their successful transition from working life to the retirement world where they will have to spend more than their income.
According to various studies, only one out of ten people understand how much they need to save and live a fashionable life after retirement. Only 14 percent of working people are confident to have enough to live on when they retire. Which category are you in? Do you believe you will continue to live a classy life after retirement? Or you need more years to plan for your retirement?
While the questions may be simple to some people, others may find this a challenge for various reasons. Maybe, they have no retirement savings account yet, or they are still financing their debts, which are likely to eat them up even after retirement. This means, if you have to estimate how much you need to save for retirement, you must start by paying off your debts. You also need to set your goals you would like to achieve once you retire.
For example, do you want to buy a small house on the beach? Do you want to support your grandchildren through education? Or do you want to travel abroad rather than sitting home idle? Consider such goals and save for them. A1 Credit can help you with the best saving tips. However, if you find this hard to plan, read on to know how much you need for your retirement.
Retirement Saving Rules of Thumb
If you are thinking about how much you can save yearly or monthly towards your retirement, you should master the following two rules of thumb. The rules may be hard to master, but they are worth it if you want to maintain your life after retirement.
Save 15 Percent of Your Annual Income Towards Retirement
Many financial experts advise that you should save at least 10 to 15 percent of your annual income for retirement. This rule may be tough for low-income earners, although the amount can be little for some people. The kind of life you will live on this 15 percent savings is also affected by many factors. For example, if you still have a huge mortgage when you hit retirement age, you will face higher expenses in your retirement life than those who settled their mortgages earlier. Additionally, if you plan to give your grandchildren expensive gifts and support their education in your retirement life, you will have higher expenses than those who only need to enjoy their peaceful old age. Don’t forget that you need to start saving in your early twenties to realize the benefits of this rule of thumb.
Save At Least 80 Percent of Your Pre-Retirement Income
The second retirement rule of thumb states that you should target to save 80 percent of the yearly income while working for your retirement. For example, if you earn $100,000 yearly, you should have at least $80,000 per year available to spend when you retire.
Again, this amount is determined by the time you start to save, and your life expectancy after retirement. For instance, if you plan to retire at the age of 60 and live for the next twenty years, you will need to save at least $1.6 million.
So, ask yourself when you need to start saving for your retirement? This is where Social Security comes in. For example, assuming you expect to be paid $10,000 yearly after retirement by your Social Security, that will be $200,000. Therefore, you need to save $1.4 million for your retirement.
Factors Determining Your Retirement Savings
While the retirement puzzle is not hard to solve, sometimes it is not a precise calculation. You will have to revisit your plan yearly to see if you are still on track. However, your retirement saving plan is determined by many factors, including the following;
Your Post-Retirement Life Expectancy
Do you know how long you will live when you retire? No one can tell the right answer to the question; therefore, your post-retirement life expectancy is only based on average. According to Social Security, the average 65-year older man is expected to live for 18 years, while the average 65-year older woman is likely to live for 21 years. This means that if you are a man and plan to retire at 65, you should save enough to feed you until 83 years, and 85 years for women. Using the second rule of thumb, if you earn $50,000 yearly, you should save at least $720,000 for your retirement. However, this calculation is based on estimates, and your life after 18 years of retirement is likely to be a struggle.
Interest Earned on Your Savings
You never know how much your stocks, bonds, or bank deposits will earn in the next 20 years of your retirement. However, looking at Morningstar’s estimates, stocks have earned an average of 10.3 percent yearly since 1926. Bonds have earned an average of 5.4 percent annually, while bank deposits have made three percent returns. Therefore, to cushion yourself against an unexpected decline in one investment, it is recommended to have different saving portfolios. For example, you can have 60 percent of your saving in stocks investment and 40 percent in bonds or bank deposits.
The earlier you take your Social Security, the better life you will live after retirement. If you wait until 50 years to take your Social Security, you will have to pay higher towards your monthly settlement if you need to have a happy post-retirement life. The annual amount you pay for your Social Security varies depending on the cost-living adjustments and the average amount you earn each year.
Therefore, as of 2020, the average estimated benefit you are likely to get from your Social Security is $1,500 monthly. However, this amount can change based on how much you pay towards your savings.
The question is, how much should you save for your retirement? The right answer is as much as you can. Remember, you are setting your post-working life, and the more you prepare for it, the fewer financial issues you will face. Therefore, it is recommended you stick to the two retirement rules of thumb if you want to save more for your future. However, the rules will only work if you consider other factors of saving.