Are you asking yourself, “How much should I save each month?” Here is everything you need to know about how much you should be saving for retirement.
In this article:
How Much Should I Save for Retirement?
Financial Planning for Life After Work
Depending on your current life stage, one way or another, you have most likely started saving for your retirement.
Employers usually sponsor retirement programs that help employees plan their financial goals and prepare for their future. They rid the employees of the burden of deciding when to start saving and how to save by making the process automatic.
Undoubtedly, these habitual contributions, or forced savings, are beneficial in saving for retirement. However, proper planning is still necessary if you truly wish to answer this question: “How much should I save to retire comfortably?”
While there are no exact figures, most financial planners will agree that during retirement, the average citizen needs to continuously earn about 70% of their current income. This means that they should have a savings of at least 70% of their income multiplied by about 20 (assuming they retire by 65). This is only to allow them to maintain their standard of living and keep up with expenses in retirement.
Most retirees aim for more than just maintaining their lifestyles, though. That is why a truly successful retirement requires long-term goals and proper planning. It has to take into consideration unexpected life events on top of anticipated costs.
Unfortunately, more and more retirees risk outliving their savings and not experiencing real financial freedom. In fact, the 2017 Retirement Confidence Survey has found that only 18% of American workers are confident in their retirement savings.
Regardless of your retirement plans, identifying your objectives can spell the difference between a successful retirement and a failed one. Numerous variables such as risk tolerance and inflation can affect an individual’s retirement planning needs.
If you want to have a successful retirement, here are the factors you need to consider:
Current Savings
If you have yet to start saving, chances are you have to increase your contributions the closer you are to retirement. A financial planner can help you come up with a financial savings plan that you can use to guide how much you have to contribute before you reach retirement.
The best way to make sure that you reach your financial retirement goal is to save money early. If you have not yet started, then it is never too late to do so.
Risk Tolerance
Your appetite for risk and your ability to withstand it plays a big role in developing an investment strategy.
Your strategy’s objective could range from simple capital preservation to aggressive growth. A shorter span of time before retirement usually means a strategy that leans towards preservation. A longer one allows you to be less susceptible to market volatility, thus allowing you to be aggressive.
The key is to consider your overall asset allocation and determine your risk tolerance and how it impacts your need to save.
Inflation
As life expectancies increase, inflation becomes a greater concern for retirees.
Retirement usually lasts for decades. Maintaining one’s purchasing power for living expenses during those years is a key element in determining one’s investment strategy.
Knowing how to invest in the right mediums should help your savings maintain its value despite inflation.
Taxes
Taxes, even in retirement, will always be there. As such, you should consider them well when planning for your retirement expenses.
The majority of retirement accounts are tax-deferred. This means that the government will tax withdrawals. Property and state taxes may still apply, too.
Try to find out more about the advantages of opening a Roth IRA account or converting a traditional retirement account to one. This provides no tax benefit for contributions. It does, however, allow for tax-free withdrawals.
Social Security Benefits
Unfortunately, Social Security reserves are declining. Experts project that they might run dry in the near future. That is why leaving your retirement income to this alone is not the best retirement plan.
Consider your Social Security benefits as only a short-term financial solution and supplement to your savings. Try to invest in other mediums that will assure you a comfortable retirement.
“How much should I save per month so I can retire comfortably?”
While there may not be an exact answer to this, there is a strategy. That strategy is to understand the concepts of long-term goals, proper planning, and discipline.
Regardless of your goals for the future – may they be travel or philanthropic causes – it is essential to first determine your retirement goals. Afterward, implementing an appropriate savings strategy that will support those goals will be easy.
What do you consider when coming up with an investment strategy? Share them with us in the comments section below!
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