How Much Should I Save For Retirement?

 

If your goal is to have a hassle and stress-free retirement, Dallas retirement planning is something that everybody should consider seriously.

It can’t be definitively stated exactly how much money you’ll need in retirement or even exactly how much you should save per year, but there are definitely some great rules of thumb that are rooted in math and science.

The amount of money you save for retirement should first be based on the type of lifestyle you want. Because there are various factors leading up to retirement, approaching the issue as a percentage of your income you set aside every year is one worthwhile strategy.

How much is enough?

Many economists suggest that you should save a minimum of 15% of your gross income every year. But when you actually run the numbers, if you want to replace your pre-retirement income so that you can keep your standard of living on the same level it was when you were working, that percentage increases to as high as 20%, 25%, or even 30% of your gross income.

Asking somebody to save 30% of their gross income every year while they working is easier said than done, but what we do know is through all the studies and through expected rates of return, simply setting aside five or 10% isn’t going to get it done.

If you want to live a simple lifestyle in retirement, that won't require a huge amount of money. But if your plan is to travel the world and live a lifestyle that one would consider active, then you will probably need a decent-sized nest egg.

One mistake people make is starting to save too late for retirement. Instead of diligently putting money away in their mid-20’s all the way until retirement, some people think they can play catch-up in their 50's and unfortunately on it just doesn’t work that way. Money needs time to grow and compound and the sooner you start, the better you’ll be.

One consideration is to simply start saving inside and outside of your employer-sponsored plans from the day you get your first job. Once you start that habit, that will pour over into future jobs and also allow your money to compound.

Another important factor is to set a realistic goal. It doesn’t do anyone any good to set an unrealistic goal of saving 30%, 40%, or even 50% of their income if that’s something that their cash flow doesn’t allow. If five or 10% is all you can say right now, go ahead and do it, and then gradually increase that as the years go by and your cash flow increases. As the old rule says, it’s better to do something rather than nothing.

Saving or Investing?

Are you saving or investing for your retirement? What’s the difference, you ask?

Well, savings denotes that there is a guarantee of principle, whereas investing doesn’t offer the same guarantee. Of course, the reason we’re willing to invest and potentially lose our principle is because of the possibility of a higher gain makes it worth it. By putting your money in a savings account or CD (certificate of deposit), you get very low returns, but the risk factor becomes almost zero. By investing your money in the stock market, mutual funds, etc., you can earn great returns, but the risk factor is considerably higher.

Which one should you do? Probably a combination of both. There should always be buckets of money on your balance sheet that are going up every year no matter what. Most people utilize a savings account and 401(k)/IRA approach. This is one way to do that.

So if you are risk-averse and don't want to lose your money, then you can go with a savings account, but looking at other conservative strategies that offer higher upsides like bond or life insurance-based strategies, may be worth a look. That said, if you are in the early years of your career and can afford to take some risk, then you should add some investment options like 401(k)’s (especially if there’s a match), Roth IRA’s, and index funds.

The Two Best Tips for Retirement Planning

As you can see, in order to have a stress-free retirement, you will be required to have a sufficient amount of money. Here are the two best tips to remember:

   1. Start Early
   2. Continue to save every year - no matter what

If your plan is to live your life to the fullest, travel the world in retirement, and keep a similar lifestyle to the one you had when you were working, then you need to start saving for retirement as early as you can.