How Much Should I Save for Retirement?
If you retire at 63 years old, you should have enough money saved that will help you meet your expenses for at least 22 years. In fact, retirees can expect to live until they are 85 years old.
The amount of money that you should save for your retirement depends on two things - your personal expenses and your lifestyle. For example, if you can live comfortably on $4,000 per month, you should plan to save at least $48,000 for each of your retirement years.
When it comes to retirement planning, there isn't a right way to do it. However, there are a few 'rules of thumb' that apply to retirement savings. Here are a few.
1. Suggested retirement savings timeline.
Fidelity bank created the following retirement savings timeline:
- Save an amount that's equal to your yearly salary by age 30.
- Save an amount that's 3 times as much as your yearly salary by age 40.
- Save an amount that's 6 times your salary by age 50.
- Save an amount that's 8 times your yearly salary by age 60.
- Save an amount that's 10 times your salary by 67.
2. The 4 percent rule.
Write the amount of money that you would like to have for each year of your retirement. Divide the number by .04 to calculate the total amount of money that you'll need to save for retirement.
Here's an example for you to follow. If your target yearly retirement amount is $60,000 Divide the number by .04. Your target amount for retirement savings is $1.5 million dollars.
How to Save for Retirement
Saving a large sum of money for retirement can seem like an impossible task. This is especially true if you don't earn a high annual salary.
Resist the urge to throw up your hands in despair and disregard your retirement needs. It's important for you to take small steps toward meeting your retirement goals.
- Contribute the maximum amount of money to your 401(k) account.
- Set up an automated retirement savings plan.
- Increase your retirement savings amount every 6 months.
- Save at least 10 to 15 percent of your income for retirement.
Saving for Retirement Later in Life
If you are over the age of 40 and you don't have a retirement account, don't panic. There are proven strategies that you can use to accelerate your retirement savings.
1. Contribute as much as you can to your 401(k) account.
If you are under the age of 50, you can save up to $18,000 per year for retirement in a 401(k). If you are over the age of 50, you can contribute an additional $8,000 per year to your account.
2. Downsize your current lifestyle.
It may be necessary for you to reduce your monthly expenses in order to increase your retirement savings. Take a look at you living expenses such as rent, mortgage, cable bill and cell phone service. What can you do to reduce these expenses? One way you can reduce your housing expenses is by selling your home and purchasing a cheaper one. If you live in a home that no longer fits your lifestyle, this might be a good plan to implement.
3. Reduce your debts.
Monthly credit card bills and automobile loans may be preventing you from reaching your retirement goals. Eliminate your consumer debt and use the money to fund your retirement account.
4. Create passive streams of income.
Passive income can cover your living expenses during your retirement years. Types of passive income include rental property, affiliate marketing, investments and e-commerce stores.
It's important for you to know exactly where you stand with your retirement income. If you haven't saved enough money for retirement, applying these tips and actions steps can help you meet your retirement goals.