One method of retirement planning is to project what you are currently saving and have accumulated to date and see if you will have enough to meet your retirement objectives. Use this calculator to determine when/if the money will run out during retirement and it will recommend additional savings if required.
Be sure to read about what costs could be associated with early retirement, and calculate further how retirement will impact your living expenses.
How Much Do I Need to Save For Retirement?
Don’t make the mistake of assuming you don’t have to save for retirement. Even if you plan on continuing to work, your health may require you to enter retirement. Or, the job market may change, and you may have no choice but to retire. Even if you have considerable investments or have a private pension, keep in mind the market can change, and some employer pensions fall apart.
Always save for retirement and start saving early to make the process easier. When trying to calculate how much you will need overall for retirement, consider:
- Your life expectancy
- Your current financial lifestyle
- Your expected retirement lifestyle
- Any savings you currently have
- Your expected age of retirement
- Your current age
You may also want to write down retirement goals to ensure they are included in your financial planning. For example, do you hope to move to a tropical location for retirement? Do you hope to travel after your work life has ended? These plans can affect how much you will need overall in your retirement.
Also, keep inflation in mind. If you decide you need $50,000 per year for your retirement, and you expect to need 15 years of retirement savings, save more than $750,000. You need to consider your plans may not work out exactly as you envision, too. Inflation may rise more than you expect, or you may live much longer than you think, requiring more than you had planned on.
How Much Should I Save Each Year for Retirement?
Once you know how much you will need for your retirement overall, you need to determine how much to put aside each year for retirement. Since you will be able to use interest, you don’t have to put aside the whole retirement amount, because you will be earning money on your savings.
A general rule of thumb is to put aside at least 10% of your income for retirement. However, if you are well into your working years, you may need to put aside more. If you are a high-income earner, you may also need to put aside more to ensure you maintain your lifestyle.
You will want to ask yourself a few questions:
- What are the savings or investment tools I’m using?
- Does my employer match my contributions?
- How much time do I have before retirement?
In general, the younger you are, the less you will need to put aside because your money will have more time to grow. If you are using investments such as stocks, you may need to put aside less than if you were just saving and relying on savings account interest to grow your fund.