What Should Your Retirement Savings Look Like Right Now?

Everyone knows the importance of saving for retirement early. If you do so consistently, by the time you reach retirement age, you’ll be able to enjoy your Golden Years without financial worry. Everyone knows it, but few do it.

Saving for retirement begins with knowing how much you’re going to need.

How Much Is Enough?

Knowing how much is enough is tricky. Today, people live a lot longer, health care costs are much higher, and fewer companies offer pension plans. Face it; retirement planning used to be a lot easier, and everyone has an opinion on how much is enough.

AARP has a useful calculator that can help you determine whether you’re on track. Simply input your age, salary, and how you expect your retirement lifestyle to be, meaning whether you’ll be living more frugally, the same, or plan to spend more on things such as traveling. The calculator tells you if you’re putting away enough to reach those goals.

The Department of Labor suggests replacing 80% of your pre-retirement income. For example, if you currently make $50,000 a year before taxes, you’ll need $40,000 a year to continue living at your current standard after you retire. This isn’t true for everyone, of course. You may have a mortgage now that will be long paid after you retire. Your taxes will likely be less, and you won’t have work-related expenses; however, you’ll probably have more medical bills.

Kiplinger recommends these benchmarks for retirement savings:

The Unknown Variable

The big unknown in your retirement savings and the thing no one likes to talk about is how long you’ll live in your retirement years. Life is uncertain, but when it comes to saving for your retirement, it’s a good idea to look at averages. The Social Security Administration has a simple life expectancy calculator in which you input your sex and date of birth and it returns the average life expectancy in retirement for people your age. Of course, it’s not a crystal ball, and it doesn’t take into account things such as genetics, health, or lifestyle factors, but it’s a good estimate for how many years you should plan to pay for in retirement. Using the Department of Labor’s recommendations, if you’re a 50-year-old male and make $50,000 a year (assuming you’ll need 80% of your income per year), then you’ll need $740,000 put away before you retire at 67. 

You can get your Social Security Statement from the SSA website. The amount you get in SS benefits likely won’t cover your monthly expenses. That’s why it’s so important to save as much as you can for as long as you can.

Not There Yet

Compounding your investment earnings means your investment grows. You put money into an account, you earn interest on that initial deposit, and then you earn interest on the initial deposit plus what you earned in interest, and so on. To take the fullest advantage of this, you need to start early. However, for many people, life gets in the way. If you don’t have enough money put away for retirement and you don’t have as many years as you may need, there’s still time to make a big push for saving.

• Reduce your expenses as much as possible and put the savings into a retirement account.
• Get a side job and put all the earnings into a retirement account.
• Make sure your stock portfolio is diversified and that you’re investing properly for your age.
• Retire later, if possible.
• Wait on collecting SS benefits. If you can wait until you’re 70 instead of 67 to start receiving your Social Security checks, (you can actually start collecting at 62), then you’ll receive a higher percentage of benefits. Charles Schwab explains it here.
• Downsize your home. Do you really need that big house now that you’re an empty nester?
• Contribute to your 401(k) as much as your employer will match. If you’re not taking advantage of this, you’re losing free money.

Your retirement plan should be reviewed regularly to make any necessary adjustments due to changes such as a job or income change. Your investment strategies will change over time as well. When you’re younger, you can invest in riskier investments that might bring a greater return. However, as you get closer to retirement age and have less time to make up any losses, you should be making safer investments.

Benchmarks should be used as guidelines; if you’re not on track, don’t be discouraged. Use them to adjust your retirement savings strategies to maximize your nest egg so you’re financially secure when you finally reach those Golden Years.