It’s time for the million-dollar question. Literally. How much do you need to save to have $1 million in retirement savings? Apparently, if you’re 21, you only need to save $25 a week to be set for a comfortable retirement. Ah, to be 21 again.
Because that ship sailed long ago for us, we need to make sure that we are financially prepared for our retirement. $1 million seems to be the magic number that comes up often when we talk about retirement savings. This is based roughly on the idea that you can fund your retirement with a 4% draw, supplement with Social Security, and have enough money for a 30-year retirement with a comfortable, if not extravagant, standard of living.
How Much Should You Save for Retirement Goals?
So, how much should you be saving? Well, it depends on your current age and when you plan to retire. Your saving habits to date also need to be taken into consideration. However, if you’re in your 50s, and haven’t been saving sufficiently, you will need to make some changes to the way you manage your money to have enough money saved and invested to see you through retirement.
For example, say you are 50 years old, plan to retire at 67, and currently have about $100,000 in retirement savings. You earn around $70,000 a year and are saving your maximum contributions of 8% and expect an annual return of 5% on your investments. You may also receive approximately $1,500 each month from Social Security. Your mortgage is paid off, so you only anticipate needing about 70% of your current earnings to retire with a comfortable lifestyle and be prepared for any unexpected expenses. Based on these assumptions, you expect to need around $4,000 in monthly income (which is approximately 4% of $1 million) but are only going to save enough for $2,300. This means that if you want to meet your goal, you need to save almost 45% of your current salary to have sufficient retirement funds to meet your expected needs.
First, you may be over-estimating how much money you will actually need in retirement.
Second, there are a variety of steps you can take to get planning and increase your savings now.
Third, encourage your kids to start saving now, even if it is just $100 a month.
Remember – Focus on Income in Retirement
There is no one-size-fits-all retirement savings framework that applies to everyone. However, how much you need in retirement savings will depend strongly on your income needs in retirement. Those can vary, depending on your expected monthly costs of living, as well as other retirement spending, such on vacations, eating out, indulging in hobbies, or other lifestyle-driven activities. Hence we advocate you focus on creating a long-term retirement snapshot, not aiming for a magic number for retirement income.
This is What You can Do:
- Check on your savings – How much do you actually have saved? What returns are your investments getting? Talk to a financial advisor to get an accurate picture of where you are and what you will need to retire. While you’re at it, check on the fees that you are paying for your retirement accounts. You might be able to carve more years out of your savings with a more efficient plan.
- Save – Invest, contribute and save as much as you can afford in a variety of saving vehicles. Like the saying goes, don’t put all of your eggs into one basket. Max out your contributions to any 401(k) or other retirement saving programs at work, traditional, and Roth IRAs, and safe investment plans. Investigate annuities and other safe options to preserve your retirement money, especially as you get closer to your target retirement date. If you are over the age of 50, some plans allow you to make catch-up contributions to retirement accounts, the 401(k) limit increases $6,000 to a maximum of $24,000.
- Reduce your spending – It isn’t too hard to trim down on your expenses with small changes to your lifestyle like eating out one less night a week, not buying a new car every few years, canceling that gym membership you never use.
Coping with Life Changes
But life will always get in the way with your best-laid plans. You might have kids heading off to college, or coming home with liberal arts degrees and plans to launch a startup from your basement. You might have an unexpected medical expense. Your children may want to get married and you might want to help pay for it. You might lose your job. Of course, these major life events might prevent you from saving and, in some cases, may cause you to dip into your savings. Very common. Just get back to saving as soon as you can and remember, every little bit adds up.
If you have questions about preparing for retirement – especially as you enter the “retirement red zone,” or the 10 years before retirement and 10 years in your post-work lifespan — SafeMoney.com can help you. You can benefit from the insights and guidance of a knowledgeable financial professional who understands retirement issues, starting with a no-obligation goal-setting consultation.
Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.