When it comes to saving for retirement, there are 2 questions I am often asked. The first is, “when should I start saving to retire?” The second is “how much should I save?” The answer to the first question is pretty simple. Start saving yesterday! Can’t go back in time? Ok, begin today! The second question involves more details, but I generally recommend 12-15% of their income. Of course there are always follow up questions, one being “how much should I have in retirement before I retire, and will 12-15% of my income be enough?”
These are serious questions that require more than a quick response in passing. Saving to retire is a personal journey that has layers of money decisions and years of patience and consistency. I’m not a CFP (certified financial planner) yet BUT I know a thing or two about what it takes to successfully save for retirement.
First off, there is NO magic amount that can be given to anyone to retire on. Why? Because retiring involves future planning, sometimes decades away! There are no guarantees in life and that goes for your money as well. Look at what we’ve been through just in the past 4 years. How many 401Ks and retirement accounts were affected by the devastation of a down economy? No one can accurately gage how the market will perform and when you add in things like inflation and the unplanned events of life, you’ll see why there is no magic number.
Now don’t let the above discourage you! There are some things you can do today that will better your chance of a having enough money to retire comfortably. Doing some research I found most experts suggest you save 50-80% of your pre retirement income in your nest egg. Now, these experts included social security in their figures, but I’m 30 years old and not very optimistic about the future of social security. To me, saving to retire should be done without adding social security. If it’s still around by the time you retire, great! Enjoy the fruits of your lifelong labor. If not, hey no sweat off your back!
Starting Early is of course one of the best ways to have a chance at this retirement savings game! Youth-ism (new word!) is a great condition to have, so if you have it, work it to your advantage. The time is now!
If youth-ism isn’t exactly a condition you possess, never fear! There’s no time like the present. Start NOW! Naturally you’ll feel like you’re playing catch up but its ok! Be like Nike and just do it!
Diversifying your portfolio is also an important tool. Sometimes you’ll hear it as asset allocation. It is soooo important to place your money in different areas. Spread it around and don’t get caught up in one stock or one bond. Didn’t your mother always say don’t have all your eggs in one basket? She was talking about your nest egg. Take heed and listen!
Also, know your risk meter! Investing in stocks takes risk (and dare I say it’s almost a risk to invest in bonds…another story, another time). Being conservative or aggressive are key factors to consider when you’re dealing with investments. The younger you are, the more volatile you can be in your investment choices. Most financial experts will advise you put a larger portion into aggressive stocks when you are young. As you get older, your aggressive behavior should simmer down which is when you would become more conservative and lean more on bonds.
Another point I must mention is to know where your funds are going! Sometimes we have a bad habit of contributing to a fund and then leaving it behind. Hey, it’s your money we’re talking about! Keeping track of your money and understanding the performance of the fund is vital. Ask for help if you need to, just get involved!
I found an AWESOME retirement calculator online that I think you should check out on CNN money. It asks when you expect to retire, your life expectancy, your savings balances and then gives you how much you need to save in order to reach your retirement goal. It even applies tax to your withdrawals so you get a better picture of how much you will have.
Hey, that’s it for me, but as always I would LOVE to hear your 2¢. Don’t be shy! Tell me how your retirement savings are going and what you can do to improve!
Photo by: MJ/TR