Whether you’ve just entered the workforce or you’ve been working on your career for a few years, you’re probably thinking about the day that you can securely retire. But even if that day is far, far away, you’ll want to begin making a retirement plan to ensure your ready when the time comes.
But with your retirement date so far off in the distance, it can be difficult to know how much you really need to save. It isn’t uncommon to ask yourself the question, “how much money do I need to retire?”
If you have found yourself questioning how much is really necessary to put away in that retirement fund, this guide can help you out.
Understanding Retirement Savings Basics
Although retirement is a personal preference, most Americans plan to retire around the age of 66. Some individuals may choose to spend more years in the workforce while others may decide to enter retirement years earlier. It all comes down to how much money that individual has saved and if they can realistically expect to retire.
But not everyone thinks about their retirement. When your 66th birthday is still 40 years away, retirement seems like something you have all the time in the world to plan for. In fact, 17% of people claim to have given no thought to retirement while only 13% of people have thought a lot about their retirement plans. When it came to people saving for their retirement, a whopping 29% of individuals said they had no money saved to stop working.
In fact, many people may not be giving retirement a serious consideration because they plan to continue working well into their retirement years. About 45% of individuals claimed that they would keep working even after the average years of retirement and an additional 25% said they believe their partner will continue working during that time.
Whether you would like to continue working through your older years is a decision for you and your partner, but if you even want to consider taking time away from your job for things like family, travel, or to just relax, you’re going to want to start thinking of your savings. But before you begin, you’ll need to know how much to realistically save.
How Much Should I Save?
There is no set number to determine how much you need to save to have a comfortable retirement. You will need to consider a few things on your way to discovering how much you would like in your savings account before you decide to retire.
1. Age of Retirement
What age you retire also determines how many years you will have to fund fully on your savings. While you may still receive some income from things like social security or a pension, you shouldn’t rely on those numbers. Although it can be difficult to know how many years you will have to fund after you choose to retire, you can work off averages and expectations.
Consider what age you would like to retire and how many years that may leave you after retirement. For many people that retire at 65, you could have 20 or more years without any true income. Planning to retire earlier would mean you should expect to save more money while postponing your retirement means you could save less.
2. Retirement Activities
You will also want to consider the kind of retirement you would realistically like to have. While you’re in your mid-twenties, it can be difficult to know if you want a relaxing retirement spent with family and friends or an one packed with the adventure of traveling the world, but as you get older, you should start thinking seriously.
If you think you’ll be getting on planes and staying in hotels for most of your retirement, you will want to save more.
If you think your expenses will decrease, you could get away with saving less. Just remember, if you plan to live on the frugal side once you retire, it may trap you into that decision.
"The question isn't at what age I want to retire, it's at what income." - George Foreman
3. Your Additional Retirement Expenses
As a young adult, it can also be difficult to think about how you would like to spend money that you don’t yet have 40 years in the future. But thinking about the way you’re going to spend your retirement money will help you decide how much you will need to save.
If you believe you may want to use some of your savings to help grandchildren with college or you’d like to donate some of your money, consider that while your saving. Also remember that even if you are young and healthy now, things may not always be that way. You could need additional cash for medical procedures, treatments, or to stay healthy during your retirement years.
Saving by the Numbers
Knowing how much money you will need for retirement is impossible to say. There is no set number that we can tell you to have in your bank account by your 65th birthday. But what we can do is help you plan to ensure that you will have that amount when the day comes.
If you believe you want to save on the higher end of the savings spectrum, you’ll want to have about 12 or more times your pre-retirement salary in your account.
While your salary will probably vary from year to year as you progress through the corporate ladder, you can tell if you are on the right the right track by using your current salary for each time you calculate the number.
For someone thinking they will maintain their level of expenses during their retirement, they should save 10 times their pre-retirement amount. If you are looking to be on the frugal side, you could stick with about 8 times.
While these numbers may seem incredibly high, remember that you have years to save up this amount of money, but the sooner you start, the easier saving will be. If you begin when you are young, even if you are only putting in a few dollars here and there, they will have years to grow interest on and compound into an amount that truly helps you in the future.
Remember, even though your retirement may be years and years away, you shouldn't wait until it's too late to begin saving. The longer you wait to begin saving, the longer you will need to work or the more you will need to put away into savings each month.