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How Much Should You Save for Retirement?

Retirement is something every working person needs to think about, no matter how young they are. The simple reality is that, at some point in your life, you are going to have no income. You’re going to need a retirement fund for your basic needs. But how much money will you need?

Calculating how much you will need to save for retirement is difficult for a number of reasons. It is impossible to know just how prices will rise over the decades. Inflation is a real issue that can eat away at the spending power of your money. 

Additionally, you may need to buy technology that has not even been invented yet. Or you might end up supporting a family member or a child who isn’t able to get a job for whatever reason. And finally, you may have unanticipated large medical needs as you head later into life. All of these things make it a challenge to know exactly how much to save for retirement. 

As a basic standard, people suggest you save 10% to 15% of your yearly income for retirement. There are two main problems with this. You may not be able to save this much without impacting your quality of life. Also, this just might not be enough in the long run if you are in a low-paying role.

You also cannot know how many years you need to plan for, especially as people begin to live longer lives. With medical advances and more attention paid to healthy lifestyles, it is a real possibility you could live deep into your 90s.

Furthermore, you might have to retire early for any number of reasons, including outdated skills, illness or disability.

Nonetheless, you need to make decisions now on how much to save. Even though you cannot calculate exact values, you can come to some estimations with the following tips.


Estimate Your Retirement Needs

The younger you are, the more difficult this task of estimation will be. However, it is tough for anyone, especially living in an age in which things change so quickly.

To get an idea of how much you will need, start with a spreadsheet of your current monthly expenses. This will include the routine basics like groceries, electricity and water, and insurance. It will also include things which are currently necessities, such as mortgage payments or other debt.

Related Content: How to Prioritize What is Important When You Make a Budget

Once you have a list of all your expenses, delete those that will be inconsequential. If you are living a wise financial life, you are unlikely to be paying mortgage payments and other consumer debt when you are retired.  The same is true for other expenses related to children or other dependents who will soon start earning their own money.

Other expenses may decrease when you retire. You may move into a smaller home which eats up far less electricity and water. You’ll spend fewer nights out and require less money for entertainment.

Then there are the expenses that may rise, like health care and the hobbies you plan to pursue in retirement.

The key with this exercise is to be decisive. If you spend hours considering exactly what your life will look like after retirement, you’ll get nowhere. You can’t be sure about any of this, so you have to go with estimations.

Calculate What You’ll Get From Your Retirement Plan

Whether or not you work for a company or for yourself, you should have a retirement plan in place. Popular retirement plans, such as the 401(k), give you a good start when it comes to saving for retirement. Calculate how much you will have in your 401(k) based not only on your current income, but on how much you can expect in raises over the years. If you don’t have a remuneration plan with your current boss, calculate your future income according to the inflation rate.

Once you have the value of your retirement plan, calculate how many years you expect to need it to last. Then subtract that from your expected expenses. That should leave you with an amount to work towards saving.

Look at Your Current Budget

It is easy to speak about how much to save for retirement from a theoretical standpoint. However, the reality is that you may simply not be able to save as much as your calculations tell you is necessary. This is why you should look at your current budget and see how much you are able to save right now. Is it enough?

If so, that’s great. If not, look at your expenses and decide which can go. This should not require you to ruin your quality of life, so don’t plan to start eating less or to forgo all forms of entertainment.

If you still are not saving enough, consider how you could make the most of your savings. You don’t need to put them in a fixed interest account if it will not earn enough. You can make calculated risks to try and attain a higher growth rate. However, do not risk your retirement savings by taking on unnecessary risk. Find a balance between the safest route and a route that will get you good returns.

There is no simple answer as to how much you need to save for your retirement. Take the above tips and try and calculate how close you are to an ideal goal. Then consider what you can start doing to increase your savings.

Leave a Comment of Answer a Question Below: Do you think you will have enough for retirement? If not, what is holding you back? Are you planning on retiring early or working passed the typical retirement age? 

Photo by Dziana Hasanbekava from Pexels

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