A 2017 study found that the median savings for retirement for Americans ages 55 to 64 was around $107,000. This translates into a $310 monthly payment. For some people, that may seem like a lot of money, while others may find it nowhere near enough.
As economic conditions change, it can be difficult to know how much money you should put away in the bank. On the one hand, you don’t want to not enjoy your life before retirement. Yet you also want to make sure that you have enough money later on.
How much should I save for retirement? Keep reading for a guide that’ll fill you in on everything you need to know.
Be Clear on Your Future Income Necessities
To understand how much money you’ll need later on in life, you first need to have an understanding of the current state of your finances. If you have a budget or a loose journal of spending patterns, it can make your future calculations easier.
Open up an excel sheet, or if you’re old-fashioned, a sheet of graph paper can also work. Enter all of the monthly expenses you have right now in the first common. Make sure to be thorough. In the second column, make an educated guess as to whether or not those expenses will grow, shrink, or stay the same after retirement.
Add those expenses together, then look for other costs you may have overlooked. If you want to travel in the future or enjoy a fancy dinner once a month, add that into the cost. Calculate your final number by 12, and that’ll be the money you need each year.
This process can seem tedious, but it’s the most straightforward way to get a grasp of how much money you’ll need later on it life.
Follow General Rules
For some people, making a budget may be out of the realm of possibilities. Others may feel that their financial situation will be different after retirement, making a budget unrealistic. In that case, how much money should you set aside?
As a general rule, many experts recommend replacing 80% of the income you made before retirement. Some people take this further, replacing around 90% of their income. Others are more liberal with the rule, and save closer to 70%.
Don’t forget to consider other factors. Payroll taxes and Social Security take up 7.65% of your income. After you’ve retired, you will no longer have to pay these expenses.
Following general guidelines won’t give you as clear of an idea of how much money you need as a detailed budget, but you can use it as a rough outline.
Make a List of Future Income Sources
Many people who plan for retirement put all of their focus on the savings aspect. However, remember that this should only be a part of your future income. There are a number of other income sources that you can take advantage of.
For the most part, Americans will receive Social Security after they retire. Although some people believe that the government may reduce the size of payments in the future, it’s unlikely that the system will disappear as a whole.
Retiring from a career doesn’t mean that you can’t find other, part-time work to do. Depending on your skillset, you may be able to make money teaching on the side, working at a shopping center, or some other part-time job.
If your job provides you with a pension after retirement, you can take advantage of that, as well as investments, selling your business or home, and rental income that you may have.
Try a Retirement Calculator
If you feel that your financial predictions are correct, a retirement calculator can allow you to see how close you are to achieving your savings goals.
These come with a number of research-backed statistics that the calculators take into consideration. They will factor in inflation predictions, as well as market returns and life expectancy. The calculators will apply these different projections and combine them with your own estimates.
Understand that while these calculators are accurate, they run off of a series of assumptions. For some people, the reality may be different. For example, if your grandmother lived until 105, you may enjoy a long, healthy life as well. However, this may mean that your retirement will require more funds.
Understand That Circumstances Change
It’s important to remember that even the best, most detailed plans can fall through. Circumstances change, and no one can predict that certain events will happen.
Switching jobs, having a new baby, or discovering a newfound passion for travel can all impact your retirement plans. In many cases, it’s best to adjust your plan as these events happen. Annuities can also change. Check out this guide to learn what are annuities.
Having a plan for retirement savings is a smart idea, and you should have a detailed one. But if the plan goes awry, don’t concede defeat. If your budget falls through, take steps to adjust it, and figure out what you need to do to get by.
Wondering How Much Should I Save for Retirement? This Guide Should Help
When planning for the future, it can be difficult to know how much money you’ll need once you retire. If you’re wondering: how much should I save for retirement? Following this guide can be a good place for you to start.
Do you have any other advice on how much to save for retirement? Make sure to let us know!
If you found this article to be useful, don’t forget to check out some of our other blog posts for more guides and tips.