How Much Do You Really Need to Save for a Comfortable Retirement?

How Much Do You Really Need to Save for a Comfortable Retirement?

Your retirement savings situation can be stressful, especially for younger savers. Other financial needs may take precedence over retirement, like paying off student debt, buying a home, and starting a family.

As opposed to other financial goals, it can be difficult to gauge how much you should be putting away for retirement. Based on your ultimate retirement goal, it’s helpful to estimate your savings each paycheck. Here are three tips to help you figure it out.

Benchmark your savings

Financial advisors have traditionally recommended people save at least $1 million to retire comfortably. Another common benchmark is for workers to aim to save at least eight times their ending annual salary by the time they retire.

Many Americans, however, fall short of these lofty goals. According to a study by the Government Accountability Office, average retirement savings for U.S. households for 55 to 64-year-olds is $104,000, while somewhat more for 65 to 74-year-olds at $148,000.

Another way financial advisors estimate how much you’ll need is by calculating what your investment portfolio can replace each year of your retirement. This number is called the replacement rate. A recommended rate is 80%, which means income from your portfolio replaces 80% of your compensation each year.

While benchmarks are helpful for planning and regular savings transfers, experts have found that the true cost of retirement is largely based on each household’s spending habits and circumstances.

Find your unique number

Income needs in retirement can differ wildly, depending on your lifestyle and health. If you want to travel the globe in style, you’ll obviously need more saved up than someone who’s happy working in their garden.

An online calculator will help you figure out exactly how much you need to save to turn your retirement vision into reality. Fidelity, Personal Capital, and The Vanguard Group offer great free retirement calculators.

Put a plan into action

After you land on an estimate, you’re ready to develop a financial plan. Remember that the earlier you want to retire, the more you have to save. If you want to leave assets behind to your heirs, you’ll need to save more too.

Some advisors recommend saving 15% of your income, and gradually increasing that percentage to 20% over time. If 15% sounds daunting, try starting a point you are more comfortable with, and increasing it by 1% percent every few months.

Start small if you must, but just make sure you start. If your employer will match in a 401(k) or another similar plan, save at least enough to receive the match. It is currently estimated that about one-fourth of retirement plan participants are missing out on the full employer match, translating to an average loss of $1,336 per person per year, totaling $24 billion of missed retirement savings. Ouch.

Another tactic to reach your goal, besides increasing savings, is reducing your expenses – particularly your debt load. Pay down student loans and other debts as aggressively as you can. Look hard at refinancing when it’s appropriate.

Sticking to a specific savings plan will make preparing for your retirement a source of strength instead of a source of stress.

Developing smart financial habits and finding experienced advice will put you on the right track. OptiFour Integrated Wealth Management has provided financial planning and execution, risk management, and wealth management for the Washington, D.C. area for over 25 years. For more information on our services, visit our homepage today!