It's Hard Work Saving for Retirement
Saving money for your retirement years can be a daunting task. And if you look to see how much money you should saving, it can be a mind numbing experience.
When thinking about where to start with retirement savings, the best advice might be to enroll into your company's 401K program. (Or start your own personal IRA.) With a 401K program, the company usually matches a percentage of the amount you save. That gives your growth potential a head start. Also, you should start saving in a program as young as you can. The compounding effect of investment growth and interest (or dividends) earned can have a great impact on your end result. In addition to putting money away on a regular basis and starting as young as possible, you should also educate yourself on the basics of finance. This will let you make better long term decisions about your money.
Fidelity Investments has over $5 trillion dollars in assets for their clients. (1) According to them, the average balance in a 401K account is $102,900 (as of the first quarter of 2018) (2) Fidelity has benchmarked what your retirement savings goals should be by age. This is outlined below:
AGE AMOUNT SAVED
30 1/2 of your gross salary
40 Double your gross salary
50 Quadruple your gross salary
60 Six times your gross salary
67 Eight times your gross salary
Another way to look at your savings need is through the "80 - 20 Rule" That rule states that you will need 80% of your retirement age income for the next 20 years. For someone who makes $75,000 per year retiring at age 67, the savings should be $1.2 million. If you factor in inflation, that number could rise by $500,000.
To get on track, education yourself about finance. Understand the different investment vehicles, how much risk you are willing to accept, what your time horizon is, and other factors to make informed decisions about your retirement account(s). You may want to consult a financial planner to help run the numbers with you. This will help you to put the correct percentage of your salary into retirement saving vehicles.
As you draw close to retiring, you should consult with the Social Security Administration regarding your benefits. These benefits, along with Medicare, will be an important part of your retirement plan.
With a new year upon us, now is a great time to review your retirement savings and make contribution adjustments to ensure you will have a long comfortable retirement.
(1) Tim Parker, What's the Average 401(k) Balance by Age?, Investopedia, June 25, 2019
(2) Tim Parker, What's the Average 401(k) Balance by Age?, Investopedia, June 25, 2019