Retirement is always a difficult phase, and it gets more complicated with the constant worry and fear of not having saved enough.
In your life, you will come to a phase where your body will lack the energy it carries today.
Although retirement means something different to everyone, we can all agree that we don't want to be stressing about having enough money for our basic expenses.
If you're asking yourself “how much should I have saved for retirement?”, stick around because I've got you covered.
Before we dive further let's cover some basics.
Saving vs. Investing: The Difference Between the Two You Should Know
People often use the terms ”Savings” and ”Investing” interchangeably, without reflecting much on their differences.
The terms are not the same.
They are as opposite as locks and keys.
While the goal is the same, providing financial security, they individually work in distinct ways, carrying distinctive features.
Savings, in many sorts, is a prerequisite of investment.
The only similarity is the shared objective in growing your money and putting you under the umbrella of financial protection when times get rough. This, in no way, undermines the importance of either.
While they are not the same things, both are equally important if you want a secure, more comfortable, and worry-free future.
Saving aims for a short-term goal; for instance, you save to buy a house, go on a vacation or pay your tuition fees.
Saving is done to protect and save the money you already have in case of any emergency.
Whereas investment is a long-term goal, it requires patience. With the investment, you need to work smart and wait until the conditions are in your favor to make a move.
Investment is made to grow wealth. The money invested is done so to get maximum returns.
Why Retirement Planning Is Important for You
Retirement is a phase where a person must relax and reap the fruit of the seeds they have grown over their life.
When we talk about the importance of retirement planning, there are many reasons one should consider drawing a well-crafted map of his life.
Retirement planning helps you draw that map.
If you've carefully planned your retirement, it will help you lead a peaceful and stress-free life.
No more sitting in your chair wondering what miracle is going to feed you and your family.
Imagine going through your bank accounts and spending money worrying about not having enough money. Well, this is all possible through intelligent retirement planning.
If you've made smart investments for your retirement, you will gain maximum benefits throughout your retirement phase and avoid running out of money.
Thorough retirement planning will help paint a bigger picture for you. You will calculate the return rate you will need on your investments.
Your questions to yourself, such as; how much should I have saved for retirement, will be quickly answered.
How is Retirement Calculated?
Before you head on to draw out a retirement plan for yourself, you must answer these questions:
What is your retirement age?
How will you calculate your retirement saving needs?
According to the Social Security Centre, your full retirement age or FRA is the age where you will get 100% social benefits.
According to the Social Security, your full retirement age needs to meet the following criteria:
- For people born between 1943 to 1954, their retirement age is thought to be 66.
- If you were born in 1955, your retirement age is 66 years and two months.
- For those of you bore from 1956 to 1959, it gradually increases.
- If you were born in 1960 or any year later, it is estimated to be 67.
Now, let's continue to our second question, how to calculate retirement saving needs?
To do so, The Social Security Centre divides the process into three steps:
- At first, it takes your 36 best paid years and produces average indexed monthly income. Only the maximum taxable earnings are counted in this income.
- Second, apply formulas to the monthly average to determine your primary insurance amount (the amount you will receive after your retirement.
- Last, they show the age you will retire to give those benefits.
Keeping in mind the following procedure, you can determine how much you will need for your retirement.
How Much Should I Have Saved to Retire Comfortably?
Jumping to the next significant section of our retirement planning, let's talk about how much you should have saved to retire comfortably.
A good rule of thumb is to save ten times more of your annual income if you want to retire by 67.
But, it's best to use a retirement calculator in case you want to retire before 67!
The truth is, if retiring by 67 is challenging, retiring any earlier will be even more difficult.
So how do prepare for retirement?
Here are two ways:
Start Investing for Retirement Early
Saving early also means investing early, and this ultimately means paving the way for a comfortable retirement.
The good thing about investing early is that it doesn't have to be a considerable amount; a small investment can do so.
Some great places to start investing are:
Invest Aggressively If You Can
If you haven't invested yet, don't lose hope.
You can always invest now.
If you are late for investment and have extra money, invest aggressively.
You must never put your eggs in a single bucket. Instead, invest in different investment vehicles, those of which you are sure will benefit you in the future.
For instance, you can invest in bonds and stocks while considering real estate.
How to Analyze Your Retirement Savings by Age
Let's talk about retirement by age.
As we go through life, we grow emotionally, personally, and even financially. Our needs and wants change according to our age and time.
Things you want in your 30s differ from the items you want in your 40s or 50s.
Hence, your retirement savings by age must be different and realistic.
Here's a breakdown by age:
Retirement Savings By Age 30
30s is the age where people are somewhat new to the job and financial scene.
At this age, most have graduated college and have been working professionally for a few years.
Some earn well. Some earn less than others.
But, overall you'll have some financial stability.
During this stage, you must save at least 1-2 times your annual income.
For example, if you have an annual income of $50,000, you should strive to save almost $50,000 in your retirement account.
This isn't a small amount, but if you are dedicated, you can do so.
At the minimum you should invest what your company is willing to match towards your retirement account!
Here are some ways you can save aggressively:
- Try Freelancing
- Go for part-time jobs
- Consider tutoring
- Uber in your free time
- Live frugally
- Adjust your spending habits
Retirement Saving By Age 40
During your 40s you look at things from a better perspective.
You're more secure about where you want to head in life and understand your needs/wants.
Since your income has increased, it's safe to assume your savings has too.
By this age, you're also more experienced in your respective field and it's recommended to have 3X your salary saved.
Retirement Savings By The Age 50
50s are the middle adulthood of your lifespan.
At this age, your moving closer to retirement.
The general retirement savings for this age is 5X your income.
Remember, these are estimated values; they can vary anytime depending upon your age, financial status, job position, interest and values, needs, and wants.
You can also check and keep a balance of your savings while plugging this number of retirement calculators.
It is also essential that you keep in balance your needs and wants.
It's better to stop yourself from buying expensive things than to regret it in the future with nothing in your hands.
Hence, make careful and realistic plans to save now for your retirement later.
Retirement Savings By Age 60
Finally, during your 60s your near your retirement!
By this age you should have 8X your income saved up.
Here is a thing: saving is only possible if your essential needs are being fulfilled.
Hence, to do so, you must grow your wealth, which is possible through investing.
The best thing about investing is that if done right, it will give you huge profits through compound interest.
You can then use this saved wealth when required at the time of retirement.
Retirement By The Age of 70
Retirement doesn't have to be complicated; it could be comfortable and peaceful if you take careful and cautious measures at the right time.
By the age of 70, you should have saved up at least 10X your current income.
It's a significant number, but you have also got a lifetime of earnings and hard work to achieve this.
People mostly assume that life will go the way they want, they spend their adulthoods carelessly without doing much for their future, and when the time comes, life is not all sunshine and rainbows.
That's why it's important to invest early.
When you're young you have a lot of energy, skills, and time. You can practically do anything at this phase.
If you dream of being a millionaire, be it.
Everything requires hard work, just don't set a goal so big that you'll never reach.
Follow the following ways to earn money
Why Estimating Your Retirement Needs Is Helpful
Now that you have a clear picture of retirement savings and money requirements, you must also estimate your retirement needs.
As we grow old, our wants for entertainment and outing might decrease, but our health and safety needs increase drastically.
It is more likely for an older person to require proper medical treatments and assessment than someone who's younger.
It is also possible that an older person might also need a caretaker who, if not considered, can disrupt your budget drastically.
According to data from the Bureau of Labor Statistics in 2018, Americans above 65 spend around $50,860 annually.
There are several retirement needs that you must keep in your mind while mapping out your plans, for instance;
- Housing and living expenses
- Food expenses
- Transportation Expenses
- Caretaker Expenses
- Health Insurance and Care Expenses
- Entertainment Expenses
You must deliberate all the factors, calculate your budget, observe your monthly spending before drawing out a retirement budget.
Learn How to Control and Adjust Your Spending Habits
Savings are not possible if your expenses are out of control.
We all go a little overboard with our spending now and then.
To save successfully, you must also adjust your spending habits.
Here are some ways:
- Spend less than you do already
- Apply the $1 Rule and try saving at least 1 dollar for the entire day
- Minimize your hangouts once a week
Overspending is something even the best of us have done.
Don't lose faith in your abilities to get hold of your finances back.
Choose any of the tips mentioned above, and your savings will grow over time.
Plan Like a Pro to Make Retirement Work for You
Retirement will not pop into your life just like that; it is something you prepare for.
The first thing you do for your retirement is to adoptt a suitable retirement plan.
This plan will help you once you are retired.
Most people dream of sitting back in their chairs, thinking about good times, or having a coffee with no worry in their mind.
People want the retirement phase to be filled with the joyful laughter of family and grandchildren, and that is why you must create a retirement plan early.
I'm betting you're not looking forward to retiring at age 65+ when you no longer have the energy and health you have today.
This is why aside from patience you need the discipline to grow your income at a faster pace.
Is this possible? Yes
But, it won't be easy!
Take the time to define your freedom number and work backwards.
We recommend you build an asset that helps you generate extra income on the side.
Make Your Retirement More Comfortable and Joyful
Retirement is a scary phrase, but it doesn't have to be.
Retirement can be a luxury time for you to sit back and relax, drink coffee and make memories with your loved ones; not worry about what's ahead.
It can also mean retiring early and working on work you love!
You can get this all by careful planning, saving, and investing.
The key is to start this process early in life.
Be very mindful of your spending.
Be generous in your savings so that you have more options for investing aggressively.
The earlier you start, the better chances you have of a comfortable retirement at an early age.
Decide today and stick to it for a better and happier tomorrow.
Frequently Asked Questions
When Can I Open An IRA Account?
An IRA account refers to an investment account that permits the investors to break certain taxes.
Anyone who is under 70 and is earning can open an IRA account.
Here are the things you need to consider before:
- To open a traditional IRA or a Roth IRA
- Financial institution to use
- Investments to choose from
How Is Retirement Calculated?
Calculating your retirement is unique for everyone. However, some things to take in consideration are age, current savings, cost of living, annual contribution, and other sources of income.
Instead of manually crunching numbers, we recommend you use retirement calculators like Personal Capital.
Aside from this work on minimizing your expenses, contribute to your 401K/IRA consistently, and focus on earning extra income.
Think big when it comes to retirement and push yourself to retire as early as possible. We stray away from retiring at the traditional age of 65 because we know retirement is more fulfilling when you can enjoy it with good health and energy.
Are Retirement Benefits Taxable?
Yes, Retirement benefits are taxable.
According to research, about 85% of your social security benefits are taxable. However, it depends upon your income and filing status as well.
How Many Retirement Accounts Can I Have?
There is no limit to the number of IRA accounts you can have. You can have limitless and even multiple of the same IRAs.
However, increasing the number of IRAs doesn't increase the $6,000 you're able to contribute annually if you're under 50.
Or, $7,000 if you're over 50 years old.