Investing,  Planning,  Retirement,  Savings

How Much Do I Need To Save For Retirement?

One of the biggest questions I get, from virtually every client and most of my survey respondents, is: How much money do I need to retire? There are so many things to think about and so many potential options it can be overwhelming to even know where to start. (Trust me, it’s complicated, and I’m a Certified Financial Planner!)

This is part of why so many people don’t even start saving for retirement. Let’s spend some time de-mystifying how much to save for retirement. Today we’ll go over some of the most common stumbling blocks to figuring out your target savings rate. We will also discuss how to evaluate online calculators you may use and other questions to think about as you fine-tune your personal savings target.

Some of the hurdles you have to jump

Let’s review some of the issues people run into while trying to figure out how much money they need to retire.

  1. People don’t understand the assumptions used in online retirement savings calculators. (Some of which have overly optimistic assumptions that might not be realistic.)
  2. Many people don’t know how much they spend now to even get a ballpark figure on what they might spend in retirement.
  3. Even people who do know how much they want to spend annually in retirement still underestimate what they need to save.
  4. People who do get a ballpark figure on how much they need to save get overwhelmed with the sheer size of the number and put it off another year.
  5. You have a bunch of kids, a needy dog, job(s), a house, school and a million other things to think about.

How much money do I need to retire?

Now I’ll walk you through some questions you can use to assess your personal situation. As you probably know, everyone’s target savings rate is going to be different. I will be diving into several of these topics in greater detail over the coming weeks, so be sure to subscribe. to get all of the posts sent directly to your inbox twice a month!

You may have heard several “rules of thumb” around how much you need to save for retirement,  ranging from 10-20% of your income. These rules of thumb rely on several assumptions. For example, the latest rule of thumb from Fidelity is 15% of your income.

To arrive at that percentage Fidelity assumes that you:

Work until age 67 (FRA for people born in or after 1960) 

Save 15% of your income from age 25-67 (did you miss that memo at age 25?)

Invest in a "balanced" portfolio (50% stocks/50% bonds)

Collect Social Security (but no pension)

OK, let’s get a more personalized number for you.

Try this calculator to see what your personal target should (?) be:

Get Your Personalized Savings Rate

Go ahead; click that link. It will take a few seconds and will open in a new tab. Then come back and finish reading.

First - Don’t Panic.

Second - You can do this.

OK, that’s a starting point, but YOUR actual number could still be different! Let’s dig a little deeper to find out why. Just like the 15% rule of thumb; this calculator relies on several assumptions that may or may not be true for you.

How long will you work before you retire?

This calculator assumes you will work until age 67. Maybe. That’s not possible, or desirable, for everyone. If you want to have the flexibility to work part-time or completely retire before age 67 you may need to save more than the calculator suggests.

What’s your asset allocation?

(Plain English: what percentage of your money do you have split between cash, stocks and bonds, etc.) The calculator assumes you invest in a “balanced” portfolio, which in this particular case means about 50% in stocks and 50% in bonds.  Your actual portfolio may hold more (or less) in stocks. If you have more in stocks you may be able to save at a lower rate, possibly retire earlier, or spend more in retirement. (Hello, Kenyan Safari!)

Side note: Stocks tend to be more volatile than bonds and cash. That means you may lose or make more money investing in stocks over any given time period. 

This calculator assumes you don’t make any major behavioral mistakes over the next 20 or 30 years.

Such as putting all of your 401(k) into your company stock because you think the price is really cheap. (Probably not a good idea) Or, you don’t get so anxious watching your diversified 401(k) drop from $320,000 to $240,000 that you move to cash. Just until the market hits bottom. (Talk to a professional before making, or even considering, this move.)

Another thing to think about, the income number you entered into the calculator.

Is your income artificially low (or high) right now? The calculator asks for your current income. If you or your spouse are out of the paid workforce for school or family duties, but re-enter later on, you may have some catching up to do. That’s manageable, but just keep in mind that your financial plan is always evolving.

How much debt do you have?

If you are making a lot of money right now but paying off a big mortgage and student loans, you may actually need less in retirement. Of course, if you decide to buy a big new house in your 40s or 50s and finance it with a 30 year’re going to need extra savings to make your debt payments.

Do you have a pension? Do you expect to receive Social Security?

This calculator assumes that you receive Social Security. If you have a pension you will need to save less of your own money. Remember, even if your employer offers a pension, you still need to sock away some decent money while you are young until you have actually qualified for a decent pension. I have a pension from Bank of America that will pay me something along the lines of $30 a month in retirement. That’s not going to cut it.

Start Saving Now. I’ll Help You.

Alright, what the heck should you do now?! It is so incredibly hard to set aside money for something so far in the future that we can’t really imagine what it will even be like.

Pile on top of that the fact that you won’t see a big, quick pay-off. This is a slow slog, and it’s going to frequently seem impossible to make any headway. Now is the time to trust that little voice telling you you need to get started your saving today. If you had a financial planner they would be reminding you to automate your savings, so make this easier on yourself and do that, too!

Don’t let a desire for perfection stop you from taking action! Just get started now and you can always adjust later on.

Here’s the plan:

1. Start saving at least 3% of your income now.

You will be surprised at how little this will affect your take home pay. If you make $70,000 a year that works out to less than $200 a month. If you have a 401(k) (or other pre-tax retirement savings vehicle) and it comes out pre-tax it will affect your take-home pay even less. A $200 contribution to your pre-tax 401(k) may only “cost” you $140 (depending on your tax bracket)! This will also most likely capture some of your employer match, if you get one. Seriously, this is such a good deal I have a hard time overstating the value of saving this way.

2. Set up a plan to regularly increase your savings over the next couple of years.

Don’t get hung up on the (huge?) percentage of your income that calculator probably told you you need to save to retire at age 67. Commit to making a series of small steps that over time can have a huge impact on your future wealth. An easy way to do this is to set increase your 401(k) contribution with every raise you get

The Secret That No One Talks About

Alright, you know we’re talking about money in ways no one else is talking so I’m going to let you in on a little secret. No one likes to talk about it because the media/our culture spends so much time focusing on people who aren’t saving. So we always hear about people who are struggling, or we hear about millionaires and billionaires who built some amazing company and now eat off of gold plates. What about the rest of us?!

Saving money and building wealth is actually kind of fun. Yeah, I said it. Fun. It makes you feel good to take care of yourself, and your family. Once you get started and see your account balances start growing you’ll be hooked.

So, what are you waiting for? Now you know what questions you should be asking yourself, how to evaluate online calculators, and have an estimate on what you might need. Let’s get started! .

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Do you have a complicated financial picture? Interested in the confidence and security that comes from knowing your financial house is in order? Let's set talk. You can schedule a quick phone directly with me by clicking here. At Spark Financial Advisors, a Fee-Only fiduciary financial planning firm, I help people connect their money to their values and make sure their money works as hard as they do.

Other articles and calculators you may like

Want to try another calculator to see if you are on track? Try this one from CNN. I like this particular calculator because it tells you clearly all of the assumptions that are made to arrive at your target number for retirement.

CNN Money Retirement Needs Calculator

Need help finding money in your budget to save? How to Easily Create a Spending Plan You Can Stick With!

Do you have a cash cushion in case you lose your job? Do you have enough saved? Find out more, read this.

Is Your 401(k) Ripping You Off?

Monthly Money Tips? Yes, Please!

Let’s Get Social


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