How Much Do You Need to Save for Retirement?

Have you been saving for your retirement? Have you been saving as much as you need to live a comfortable life once you stop working? 

If you’re like a lot of Americans, unfortunately, the answer is “no.” Many families in the U.S. have no money saved for retirement, and the median retirement savings for all working families is a mere $5,000!

Clearly, $5,000 isn’t going to get you too far when the time to retire arrives. How much do you need to save for retirement, though?

The specific amount that you need to retire varies depending on a lot of factors.

Read on to learn more about how to calculate the amount of money you need to save in order to retire.

How Much Do You Need to Save for Retirement?

When it comes to calculating the amount of money you need to save for retirement, there are a lot of things you need to think about.

The following are some basic steps you ought to take to figure out how much you want to have saved when retirement rolls around:

Rules of Thumb

If you’ve never thought about how much you’re going to save for retirement or done any calculating — like 42 percent of Americans — it helps to start with some basic rules of thumb. 

These are not as accurate as doing actual calculations (we’ll get to those in a minute), but they’ll help you get a general idea of where you’re at and where you need to be.

One of the most common retirement savings rules is the 80 percent rule. This rule recommends saving enough money to replace 80 percent of your current, pre-retirement income.

This is not a hard-and-fast rule, and some people recommend following a 70 percent or 90 percent rule instead. There’s a lot of room for error when you base your savings on generalities.

Calculate Your Future Income Needs

Because there’s so much room for error, you need to do some math at some point and come up with a more precise number if you really want to know how much to save for retirement.

This step does take some work. But, it will also give you a more accurate view of your finances and how much you need to be saving.

The following are some tips to help you start calculating and figuring out your unique retirement savings needs:

  • Think about the age at which you’d like to retire
  • Consider your average expenses each month
  • Consider which expenses will stay the same, increase, or disappear in retirement (a house payment, for example, will hopefully not be applicable when you retire)
  • Add up your expected monthly expenses
  • Make additional allowances for things you might need to pay for, such as travel or home renovations
  • Multiply this number by 12 to get a general idea of your annual income needs

Once you’re aware of your estimated annual income needs, take a look at what you have saved already. Are you on track to meet your income needs? Don’t forget to factor in your estimated Social Security benefits and your company pension plan, if you have one.

Additional Factors

Remember to think about inflation and interest when you’re calculating your retirement savings, too.

The money you’ve invested in your retirement accounts now will continue to grow over time, so you will have more to work with as you continue saving for retirement (especially if you start saving early).

Don’t forget about taxes, either. You’ll have to continue paying taxes after you retire, so you’ll need to make sure you have enough to live comfortably after Uncle Sam has taken his slice of the pie. 

Tips to Maximize Retirement Savings

Clearly, there’s a lot to take into account when it comes to calculating your retirement savings.

After you’ve done some basic math and thought about how much money you’ll need to set aside, you may find that you come up short and aren’t on track to enjoy the kind of retirement you’d like.

If this is the case, don’t give up hope. There are lots of things you can do, starting today, to maximize your retirement savings. 

Here are some helpful tips that will allow you to put more money in your retirement accounts:

Meet Your Employer’s 401(k) Match

Does your employer match 401(k) contributions?

Whatever their match policy is, if they have one, make sure you’re contributing the maximum amount during each pay period to take full advantage of this benefit and put more money into your account.

Open Another Retirement Account

You may want to open another retirement account, too. A traditional IRA or Roth IRA is a great way to set aside additional money to fund your retirement.

Take Advantage of Catch-Up Contributions

If you’re over the age of 50, you’re able to contribute more each year to your 401(k) and other retirement accounts. These are known as catch-up contributions and allow you to give your retirement savings a boost as you get closer to retirement age.

Hire a Financial Advisor

All of these are helpful steps to take. Perhaps the best thing you can do to start saving more for retirement, though, is to invest in the help of a financial advisor.

A financial advisor can help you come up with more precise retirement savings calculations. They can also answer your questions and teach you the best strategies for maximizing your savings and getting on track with your retirement goals. 

Start Planning for Retirement Today

Now that you have a clearer answer to the question, “how much do you need to save for retirement?” it’s time to take an honest look at your finances.

Are you on track to save the specific amount you need for a comfortable retirement? Or, could you use some extra help managing your money and making sure you have enough saved? 

If you fall into the latter camp, or if you want to make sure you’re doing everything you can to plan for your retirement, we can help.

Contact us today at Navigation Wealth Management for a free financial assessment. We’re a team of Certified Financial Planners who can help you grow your wealth, optimize your cash flow, and make sure you’re set up to enjoy your retirement.

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