Are you saving enough for retirement? Building a large enough nest egg to finance the kind of retirement you’re hoping for is a task that takes serious planning.
How much money does it really take to leave your 9-to-5 and never look back? It depends on several factors, including your lifestyle and how your money is invested, but generally you’ll need millions; 1.7 million to be exact, according to recent study by Charles Schwab.
While everyone’s retirement goals and dreams are personal to them, there are a few factors to consider when calculating your desired “number”.
Saving vs. Investing
The Schwab research showed that 64% of people see themselves as savers, not investors. As a result, most 401(k) participants (54%) tend to put additional retirement funds in a savings account instead of another investment account such as an IRA, brokerage account, or health savings account.
The negative effects of this strategy is that savings accounts typically pay much lower returns than investment accounts. Especially earlier on in your career. It could be more financially beneficial to take advantage of having ample time before retirement to take some of the risks that allow you to earn more with your investments.
Actively Manage Your 401(k)
A third of the Schwab study participants who auto-enrolled in their 401(k) plan never increased their contribution level, and 44% have never made a change to their investment choices. To make your 401(k) work for you, you need to give it some TLC. (This also goes for other accounts such as IRAs, brokerage accounts, and HSAs.)
Hiring professional help can really make a difference when managing these accounts. In fact, 95% of Schwab survey participants said they would be “somewhat” or “very” confident about making investment decisions with help from a pro versus 80% if they had to do it on their own.
The 80% and 4% Rule
Most experts say your retirement income should be about 80% of your final pre-retirement salary. This percentile number can be moved up or down depending on other sources of income, such as Social Security, pensions, and part-time employment, as well as factors like your health and your desired retirement lifestyle.
The 4% Rule guides how much money you can withdraw annually once you’re retired, without cutting into your investment principal. As the name implies, this rule of thumb says you should withdraw 4 percent of your retirement portfolio the first year, and continue withdrawing the same amount, adjusted for inflation, each year after that.
Savings by Age
According to this survey by the Transamerica Center for Retirement Studies, the median retirement savings by age in the U.S. is:
- Americans in their 20s: $16,000
- Americans in their 30s: $45,000
- Americans in their 40s: $63,000
- Americans in their 50s: $117,000
- Americans in their 60s: $172,000
Suggested Retirement Savings by Age
The above savings amounts may seem impressive, but consider this “rule of thumb” given by some financial experts on how much individuals should be saving for a goal of retiring by age 67:
- Americans in their 30s: 1–2 times their annual salary
- Americans in their 40s: 3–4 times their annual salary
- Americans in their 50s: 6–7 times their annual salary
- Americans in their 60s: 8–10 times their annual salary
That means, for example, that a 35-year-old making $45,000 a year should have up to $90,000 in retirement savings— worryingly twice what most Americans have saved.
Retirement calculators are a quick and easy way to create your retirement plan. You can view your retirement savings balance and calculate your withdrawals for each year. Even factors like Social security is calculated for you based on your income. Including a non-working spouse in your plan increases your social security benefits up to, but not over, the maximum.
However, don’t use a retirement calculator once and rely on that number. Your life, the market and the world will continue to change, so repeat this exercise once a year, or with any major changes to make sure you’re on track.
Getting Professional Help
While the above steps can certainly help get a better idea of your retirement prognosis, the right financial advisor can help you reach your long-term financial goals.
Here at CKS Summit Group, we design plans which are specifically structured to limit downside stock market risk. This allows us to protect our client’s assets while providing them with strategies for achieving effective tax reduction and inflation protection.
Come experience the new evolution of Retirement Income Planning. Contact us here today to set up your complimentary strategy session.