Looking to Retire? How Much Should I Save For Retirement?

Budgeting / By Humbled Budget

Humbled Budget Team

With over 55 years of combine experience in the Finance/Tax Industries based in the United States, Our Team of Humbled Individuals' shares their wisdom gained through experience or technical knowledge acquired through Additional Education.

Retirement should be a wonderful time where you get to lay back and take it easy, whether that means playing golf, traveling around the world, or even starting on that hobby you want to start. Studies show that once you begin planning for retirement, the success rate of achieving it rises dramatically so don’t wait start TODAY. One major challenge is figuring out how much you need to save for the future so you can fund your living expenses for the lifestyle you want to live.

There are many approaches in deciding how much to save for retirement depending on upkeeping your life style. Determining the right number means assessing your current income, identifying your ideal retirement lifestyle along with its associated costs and most importantly your family’s financial well-being.

Table of Contents

Retirement Date Set?

Establishing a clear retirement savings goal can help you stay in financial health during your retirement years, many accomplish this through investing in tax deferred plans such as 401ks and traditional IRAs. It is wise to be cautious as your investment fluctuates along with the market so don’t have all of your eggs in one basket.

Working in smaller increments to save can make a larger retirement goal seem less overwhelming and creates a good mindset to get into. Planning a goal can also help you visualize and forecast your retirement date. Keep grinding on that milestone while living life to the fullest, ever step you make is great progress to reaching your goals. Remember to be very conservative on your estimation, better to be safe than sorry so factor in medical expenses as you age.

Retirement Number to the Dot

Not everyone will be on the same path to retirement as you, life happens so there is no one plan fits all. However, it is still wise to set the amount saved for retirement and different budgeting strategies based on their lifestyle goals, income, and personal financial situations. Three most common strategies to achieve your milestones include the 25% savings rule, the 75% income rule, and the “10 times your salary” rule.

The 25% savings rule for retirement recommends that you try to save 25% of your income, the better as your investments compound. The earlier you start this strategy the better, as your investment compounds and you can hit your goals a lot quicker than anticipated.

The two potential downsides with the 25% rule are, first, this rule assumes you can afford to set aside 25% of your pay for saving or investing. That may not be realistic if you’re just starting out in your career and earning a lower income or you’re paying off debt. You may only be able to save 10% or even 5% of your income instead but that is a good start. You still need to fund your lifestyle and once in a while splurge to keep stress down. Create a budget and sticking with would be your best strategy.

The 25% of Income Rule

The 75% rule for retirement focuses on how much of your current income you’ll need to live on instead of what percentage of your income to save. Saving 25% is heft it could prove difficult for many, you can get a second job for additional income, but we recommend to invest in yourself learn a new skill set.

Depending on when you plan to retire, expected spending, and inflationary changes, saving 10 times your income won’t be enough so do keep that in mind. On the other hand, you might need to save 12 or even 15 times your income, especially if you’d like to retire before age 65. It all depends on when you start, the earlier you begin the more your investment compounds.

Adapt to your Budget, Achieve your Goals

Everyone’s needs and goals are different, and the savings rule you apply can depend largely on your vision for your retirement. Some people what to retire earlier so if that’s the case adapt and change your savings allocation.

Keep these questions in the back of your mind while beginning the retirement planning.

How do you invasion your retirement?
What will your primary and secondary income sources be in retirement (i.e., 401(k) savings, IRAs, taxable accounts, pensions, Social Security)?
Don’t forget about Uncle Sam taxes, be sure you have enough?
How much do you anticipate paying for medical care and where will the money for those expenses come from (Medicare, Medicaid, long-term care insurance)?

Conclusion:

Whether you want to retire earlier or retire when you are ready, it is important to ask yourself these questions and plan earlier. Getting the jump will make your transition much less stressful and will give you time to plan what you want to do with your retirement time.