There is no specific equation to depict how much you need to save for retirement because lots of variables are involved. So it’s best not to stick to a single number. The more you can save, the better your retired life will be.
Factors determining retirement savings
The two most important factors that determine your retirement savings are:
- Your age – the sooner you start saving for retirement, the less you need to save each month for your retirement fund, and vice versa. Starting to save for retirement at a young age is definitely a good idea.
- Your lifestyle – the amount of money you need to save depends on how you want to spend your retired life. That is, whether you plan to stay at home or go on a world tour after retirement determines the weight of your retirement fund.
Apart from the above two factors, some other determinants are:
- The amount of money you earn during your professional life,
- How devotedly you stick to your savings plan,
- Your investment returns before and after your retirement,
- Your education level,
- How long you live,
- Other financial obligations like mortgage, car loan, and so on.
Tips to calculate your retirement savings
You cannot accurately determine how much money you need in your retirement account to retire comfortably. However, the following tips can give you a rough estimate of how much to save for your gray hair days:
- Take help of calculators – using online retirement savings calculators will give you a basic idea of how much you need to put in your retirement account. These calculators will help you evaluate your net retirement savings based on your current financial condition.
- Make investments to pull greater returns – investments are the smartest (though sometimes risky) way to earn more money in a limited period. If you want a peaceful retirement, you must make some investments and keep that money for your retirement. Revisit your investment plan at regular intervals to avoid investment loss.
- Save as per your current salary – don’t push yourself too much so that you don’t have money to cover your daily expenses. Your retirement savings depend on your current income; deduct your daily expenses and other payments such as mortgage, car loan, or credit card installments from it and then save the rest for your retirement, emergencies and any other purpose in mind.
- Calculate post retirement taxes – Don’t think that you won’t be taxed after retirement. Withdrawal of funds from retirement accounts such as IRS, 401(k) plans, 457 plans, 403(b) plans, etc., after retirement, is considered taxable income. Moreover, Social Security benefit is also taxable if you have other sources of income after you retire. Your Social Security benefit will be tax-free if it’s the only source of income in your retirement.
- Count expenses in retirement – your daily expenses won’t vanish after you retire. Right? So, don’t forget to consider them after retirement (like grocery shopping, utility bills, etc.,) when you start building your retirement fund.
I would again remind you there is no rule of thumb that determines your retirement fund quantity. If you save more, your retired life will most likely be comfortable and stress-free as far as money is concerned.
Your ultimate guide to saving for retirement should be, “don’t borrow money from others after retirement” because it will be difficult to generate money to repay the debt.