Picture this: You’ve just landed your first big job in the real world. You’re about to have money coming in steadily. You’re off to a great start, and you’ve already got your 401(k) contributions set up. You receive your very first paycheck (and many more throughout your career) so you can consistently contribute to your retirement plan from day one. Then, just like that 40+ years go by in the blink of an eye. You’ve enjoyed a successful career, but now you’re ready to settle down and enjoy your golden years. You’re ready to retire.
In an ideal world, that’s what happens; you start saving for retirement at the very beginning of your career—preferably at the same time you receive your first paycheck. But that’s not often the reality. Not everyone works consistently over the course of their career, which could be due to a variety of reasons including becoming a parent, unexpected illness, disability, injury, job loss, or experiencing a significant loss of a loved one. Additionally, everyday expenses get in the way just as often, which could make it that much harder to save consistently for retirement. And, depending on your age, you may not feel as much of a sense of urgency to save for retirement if you’re nowhere near retirement age, causing you to put saving for your future into the “someday” category.
Make no mistake, I completely get it. We’ve all been in your shoes at one point or another. Sometimes, life happens and other things take precedence, and we get sidetracked from saving, especially when it’s for something that seems so far off in the distance. But those 40 years? They go by in an instant.
It’s never too late to get into the saving for retirement frame of mind. The sooner you start putting money away, the greater your retirement bucket will be when it comes time to say goodbye to your career.
What Does Retirement Look Like to You?
What are you envisioning for your retirement? Traveling around the world? Spending quality time with your grandkids? Paying off any remaining debts to live debt free? Relaxing by the beach? Starting a new hobby?
Retirement looks different to all of us, and the way you desire to spend it is entirely up to you. But depending on the lifestyle you’ve been working toward for these last few decades, it’s crucial to plan ahead and map out how much you need to comfortably retire. Asking yourself what retirement looks like will allow you to determine how much and how often you should be saving. If you’re dreaming of seeing the world, then you may need a larger nest egg compared to someone who’s already got all their big debts paid off and is ready to relax and unwind with no imminent travel plans.
Additionally, answering the question of when you are hoping to retire will also help you determine how much you should be saving on a yearly basis. In this modern world, people retire early (before the standard median retirement age of 65), semi-retire (work part-time just to keep earning a little bit of an income or for something to do), or never fully retire at all.
How Much Should You Save for Retirement?
Many Americans are not putting enough money away for retirement to live the life they’ve envisioned after leaving the workforce. About 55% of American workers are behind on saving for retirement and 32% have not started saving for retirement whatsoever. Unfortunately, our current economy is not doing any favors to help combat those numbers either. We’re in quite a unique position these days due to inflation, which is hindering people from saving money at all, let alone for retirement.
So, how much do you need to have saved for retirement? This amount will vary for everyone and depends on a variety of factors including your lifestyle, financial habits (spending, saving, and borrowing), the age at which you plan to retire, life expectancy, increased healthcare costs, inflation, and more. While there are no rules set in stone for how much you should have saved by a certain age or a minimum requirement amount, many finance experts advise saving 10% to 15% of your pre-tax income.
Additionally, Fidelity Investments recommends following these guidelines of saving for retirement:
Age 30: 1x your salary
Age 40: 3x your salary
Age 50: 6x your salary
Age 55: 7x your salary
Age 60: 8x your salary
Age 65: 9x your salary
Age 67: 10x your salary
Phew! Are you feeling alright? I know that’s a lot to take in but stay with me just a little bit longer. I understand that those are some pretty large numbers, and if you’ve had to delay saving for your retirement at any point, you may be feeling a little uneasy if you haven’t reached those milestones yet. And that’s okay. Very few people have.
One crucial thing to remember, though, is just how important it is to invest in yourself and your future.
How to Build a Solid Future
My advice? Include yourself in your expense budget and always pay yourself first. Don’t save what’s left over after you pay your bills, instead, add your savings as a high priority expense.
No matter how much or how little you’re able to save, motivating yourself to be in a saving mindset will encourage you to put money away, and eventually it’ll become second nature to you. Try to save a specific amount with each paycheck to build your retirement savings and watch the numbers grow over time.
Does your employer offer a retirement plan? If a 401(k) is one of your benefits, take advantage of it to fully maximize this benefit! I really cannot stress that enough. While you’re at it, find out if they match contributions up to a certain percentage. Nowadays, the average 401(k) employer match is 4%-6%. So, let’s say your employer offers a match at the higher end – 6%. With that, you’d only need to contribute 4% more to reach the general rule of thumb recommendation of 10%. If you’re unable to contribute that much right off the bat, that’s okay, too. Some employers will contribute to your retirement plan whether you choose to or not. And that right there is essentially free money! Ultimately, you’ve got to start off wherever you’re comfortable, even if it’s 1%. After you reach a point where you feel more stable, start increasing your contribution percentage with each pay raise or more often if you can swing it.
One of the nicest parts about having a 401(k) is that the money automatically comes out of your paycheck and goes directly into your retirement plan. You don’t ever have to see it make its way into your checking account, tempting you to spend it. And you can’t spend what you can’t see or touch, right? Your money is safe (and out-of-sight, out-of-mind), and, most importantly, growing for your future.
Have you recently been promoted or gotten a raise? The first thing you did was probably celebrate and enjoy a night out with friends or family, and that’s completely fine! But it’s crucial to also remember to make it a priority to save for yourself and your future, and what better way to do that than by increasing your 401(k) contribution! When you save money with each pay increase, your future self will thank you.
Aside from your employer’s retirement plan, open up a separate Traditional IRA or Roth IRA and contribute to that as well. Here at GOLD, we offer both products with great tax advantages that can help prepare you for a successful future.
Once you’ve set your contribution limits with your employer and/or open your own separate IRA, the best thing to do is set up automatic payments and contributions to come out of your checking account. With a set it and forget it mentality, you’ll be building your savings at a quicker pace to be on the right track to retirement.
Navigating Today’s Economy
As I mentioned earlier, we’re in an extremely unique situation due to the high inflation we’ve been experiencing. The cost of living is at an all-time high, leaving many people feeling uneasy and discouraged about saving for retirement. As a result, many people are putting saving on the backburner altogether. I can’t even say that I blame you, but try with all your might not to give in to the temptation to stop saving, pause your contributions, or withdraw from your current retirement savings.
Remember, no matter how much or how little you save, you’re at least putting in effort and will notice a difference over time.
Saving for retirement is a long-term commitment, but it’s one that will pay off in the long run. While the road to retirement may not always be easy, you can and will get there with the right determination and consistency.
At GOLD, we’re here to help you make smart moves and decisions with your money. Give us a call at 484-223-4200 to learn about our investing and retirement planning solutions to help you manage—and increase—your wealth.