By Dana Anspach. Money Over 55 Expert
Dana Anspach has been About.com's MoneyOver55 Expert since 2008. She is also a contributor to MarketWatch as one of their RetireMentors .
Dana is the founder of Sensible Money, LLC, a fee-only (meaning they sell no financial products for a commission) professional services firm which offers retirement income planning and investment management services.
You can follow Dana at Sensible Money on Facebook or Twitter where you'll find more free content and conversations.
You can also watch one of her recorded classes on YouTube called The Key to Retirement Success .
Some people will give you a rule of thumb on saving for retirement, such as “you need to save 10% of your income”. Following such a rule is better than not saving at all, but the truth is one rule does not apply to everyone.
I know you want an easy answer as to how much to save for retirement and I wish the answer were as easy as “save $436 a month”. It just doesn’t work that way. Like building a house, you have to make plans and determine what features you want.
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Then you can decide how much it will cost and how long it will take.
Bottom line: how much you need to save for retirement depends on your individual circumstances. All of the following things help determine the answer:
- How much income you want to have in retirement
- How old you are today
- Your desired retirement age
- How much you already have saved for retirement
Let’s take a look at each one of these items to see how they affect how much you need to save.
1. Desired Retirement Income
The more income you want to have in retirement, the more you will need to save.
If you start young, and retire later, by consistently saving each month you may be able to achieve a comfortable retirement lifestyle. How much is enough? It depends!
To get a rough idea of how much you’ll need, you can assume you’ll need at least $100,000 for every $5,000 a year of retirement income that needs to come from savings. That means if you want $50,000 of income you’ll need at least $1,000,000 saved.
If want to see what it takes to get to a million check out 5 Ways to Become a Millionaire for some great ideas on how to kick start your retirement savings plans.
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Then you can use
one of the top 3 millionaire calculators to see exactly how much to save to get to a million.
Maybe you are not aspiring to be a millionaire, but just want to figure out how to save a bit more each month. Check out How to Save More Money for some practical tips.
2. Current Age
The more time you have before your desired retirement age, the less you’ll need to save each month to reach your goals. If you have less time, you’ll need to save more. Take some time to calculate your needed savings by using an online retirement calculator .
If you think you want to retire early, read up on early retirement age and some extra steps you’ll need to take to make that work. And if you work for a company that offers a 401k plan, check out How Much Should I Contribute to My 401k .
If you are getting a late start on saving for retirement, you may need to make some big changes. You could downsize your lifestyle (smaller home and car, less travel and shopping) so you can save more. Or you can plan on working longer.
3. Desired Retirement Age
When the idea of retirement first started, people did not live as long as they do today. With improved health care, if you retire at 62 you might be spending 25 – 35 years in retirement. That will require a hefty nest egg. Many people are going to be better off working longer, at least until age 70. By working until 70 you can delay the start of your Social Security benefits and get a larger amount of guaranteed income from Social Security at age 70.
There’s a lot that goes into the decision as to when to retire. If you have a particular age in mind check out the related article below:
4. Existing Savings
If you inherited money or already have a decent amount saved, you may have a good head start on saving for retirement already. You can walk through the four steps to determine how much to retire to get a rough calculation of how close you are to meeting your desired retirement goals.
If you are starting from scratch, you want to save as much as possible, or think about some non-traditional approaches to retirement. In Web’s Best Collection of How to Retire articles you’ll see some creative suggestions on how to achieve a comfortable retirement, such as “how to retire with little money” or “how to retire on $12,000 a year”.
Category: Personal Finance