Are you wondering how much money you should save for retirement each year? Get a rough idea of what you should expect to put away.
Whether you’re nearing your 50s, or you’re still in your 20s — knowing how much to save for retirement can be daunting.
Many experts recommend saving around 15 percent of your pre-tax income each year, but there’s no set amount you need to be saving. It’s also never too early to start.
Steps to Determine How Much to Save
Take a look at your current spending habits, your life expectancy and imagine your retirement lifestyle. All of these factors can dictate how much you need to save. Consider these steps to help you determine what you should be putting away.
1. Estimate your need for cash
We know it’s tricky to know how much money you’ll need in retirement, but do your best to anticipate your income requirements. Think about your current expenses now, and how those will translate into retirement. Perhaps your mortgage payment will disappear, or you won’t need to spend as much money on gas for your car. But, remember that you may have new expenses during retirement — like funding those hobbies you always dreamed of pursuing, or traveling around the world.
Calculating your replacement ratio can help you estimate what percentage of your pre-retirement income you’ll need to maintain your current lifestyle during retirement. You can do this by dividing your retirement income by your pre-retirement income, and then multiplying that by 100.
2. Consider your retirement age
The age at which you retire can have a significant impact on your financial situation. If you’re counting on Social Security, remember that you can claim it as early as 62, but your monthly benefit will be permanently reduced. If you wait until you’re 70, you’ll receive the highest possible payout.
If you’re planning to postpone retirement until you’re older, you’ll typically need less in your savings account that you would if you retired earlier. If retiring younger sounds like a better option for you, you probably need to have more in savings. Having a part-time job can also aid in reducing financial stress.
3. Use tools and trackers
Respectable retirement calculators can help you determine your cash needs during retirement, and how much you’ll need to save. Of course, these are estimates and can fluctuate based on your individual circumstances. Nonetheless, they can be useful in giving you a ballpark idea of what you can do now to help prepare for retirement. Our retirement calculator can also help you get an estimate of what you will have saved when you retire, which you can compare to the amount you may need at retirement.
Sitting down with a financial professional can be even more beneficial to help you understand exactly what you should be putting away each month. Oftentimes, they have sophisticated tools that can take various factors into account, like your investments, Social Security, dividends or investments.
4. Constantly evaluate your situation
It’s great to have a solid savings or investment plan in place, but life often changes — sometimes on a dime. Whether it’s a new baby, a new home or a change in your work situation, many circumstances can affect your future financial goals. Instead of struggling down the road, it’s best to make changes to your finances now while you can.
Set aside time each month to briefly review your finances and future retirement goals. If you’re struggling to understand your finances or simply want someone to guide you through it, our team at Trust Point can help guide you. Contact us to see how we can help you or to schedule a meeting.