The thought of sipping drinks by the pool and watching television kicked back in your recliner anytime you feel is the promise of retirement. It seems the professional world dangles that carrot in front of you as you slave away forty plus hours a week.
Getting to that paradise is a long journey that involves preparation. Saving for retirement is a big chunk of your financial goal. Knowing how much you really need to retire these days will help you find comfort that you will one day grab that carrot.
Your Magical Retirement Number
Many financial advisors proclaim the magic retirement number to be one million dollars. That number is astounding and seems impossible to many workers especially just starting out in their careers making a low salary. Most professionals in today’s world don’t live up the magic retirement savings number. The average retirement savings is about $104,000 for those ages 55 to 64 and $148,000 for those ages 65 to 74 years old. Of course, these numbers can and will change over time for each generation. Your number might not be the same number as your co-worker.
You may aim to downsize after retirement while your co-worker plans to travel meaning your numbers should be different. Many people make a goal of 80% of their income before retiring. This means in order to know how much you will need to live you start by multiplying your household income by 80%. This is the basic amount most people will need in retirement to sustain everyday life. After this, you subtract your household Social Security income.
This number is the amount you will need from savings. Many financial advisors say you should be able to withdraw 4% of your retirement savings each year without worry and this money should last you many years. Using this advice, you divide the amount you need from savings by 4% giving you a true target for retirement savings.
Once you know your target, you can start to make a plan. It may seem insane if you are early in your career to think ahead 30 years, but it will be worth it. If you plan to retire early in your career you will need to up the ante on your savings and your goals. Financial advisors recommend saving at least 15% of your pre-tax income. This might sound extreme to some especially if your salary is low. If this is too high, start at a comfortable number for you and boost this rate by one percentage if possible every few months.
One thing that helps this percentage is a 401k matching program. Many companies offer a match or a similar retirement plan that helps with savings. Put aside the maximum amount the company will match if possible to boost the 401k savings. Another thing to do if the percentage scares you is to pay off debt. Debts weigh you down and you sure don’t need them in retirement. Focus on your debt and pay it before saving large percentages of your salary. Retirement doesn’t have to be all about savings either.
Investments are a huge way to boost your nest egg. A large percentage of your savings should be invested in stocks. Stocks on average have a total return of about 10% a year. Some do even better than this. It’s next to impossible to know if a stock will be a total hit or miss, but it’s also next to impossible not to invest and be left out of the thousands you could have in “free” money.
There is no magical number because each person is different. Know your investments, how you want to live after retirement and how free you want to be with your money today. Knowing these things will help you live life to your fullest and find your magical number at the same time.