There are several factors that contribute to how much money you should save for retirement. A retirement savings calculator can help to estimate how much you should be saving.
As a rule of thumb, many retirement specialists recommend that you save 10-15 percent of your income each year for retirement. But there really isn’t a one-size-fits all approach to this because this number is dependent on your standard of living in retirement. If you earn a higher income, you may need to save 20 or 30 percent of what you make annually. Now, you may be asking yourself, where does this money come from? The answer to that is that it will most likely come from your savings, social security, and a 401(k) or other workplace retirement account that will count towards your savings. It’s widely recommended that the earlier you start saving the better. Saving early for your future will give you more time for your investments to grow and lower your yearly savings rate.
To start with, some of the main factors that go into figuring out how much you should save for retirement include your desired spending in retirement, your current age, your ideal retirement age, and your existing savings. As we’ll discuss later on, a retirement savings calculator can help you group these numbers together to curate an estimated amount for how much you should save at retirement.
Desired spending in retirement
Your desired spending in retirement is dependent on your current lifestyle and the lifestyle you’d like to have in retirement. Saving for retirement is subjective depending on your ideal future plans. A more glamorous retirement may involve you producing no income and living off of savings while receiving money from pensions and/or a 401(k). Others may find joy in retiring from their primary occupation but still working either a different job in their field or taking on an odd job. While working after retirement probably won’t bring big bucks to the table, it can give some people a sense of satisfaction and purpose while relieving some stress of having to save insane amounts of money beforehand.
Your current age
Another consideration you should make when it comes to deciding how much you should save for retirement is your current age. Experts recommend that the sooner you start saving for retirement, the more time your money has to grow. Your mid-twenties is a good place to start setting aside money for your future. This will give you time to slowly start figuring out what kind of lifestyle you’d like to have for retirement, and it’ll give you some peace of mind for the future. On the other hand, if you’re saving for retirement at a later age in life, some things you may want to consider are downsizing your lifestyle or planning to work longer. Opting for a smaller home and/or car and engaging in less travel and shopping are some realistic lifestyle changes that you can make.
Your ideal retirement age
The age you plan to retire is vital because this will give you a rough idea of what benefits you are eligible for and when you can get the most out of these benefits. Planning at least five years ahead of when you would like to retire is a smart move. According to the US Census Bureau, 63 is the average retirement age in the United States. The earliest you can claim social security is at age 62, and Medicare benefits begin at age 65. However, if you are interested in how you can get the most out of social security benefits, consider retiring later. If you choose to retire at age 70, you qualify for maximum monthly benefits.
Taking a look at your existing savings is something that may not cross your mind right away when thinking about how much to save for retirement. Truth is, everyone’s situation is different. Some people go into this journey starting from scratch and they save as much as possible for retirement. Conversely, others may have a head start into the process if they’ve inherited money or already have a decent amount of money in a 401(k). Your existing savings will tell you if you should need to save more for your retirement plans.
Try a Retirement Savings Calculator
A retirement savings calculator can give you a good estimate on how much you should have saved for retirement. NerdWallet offers a retirement calculator that projects this amount based on your age, pre-tax annual income, current savings, and how much you save every month. The calculator also includes an optional part where you can punch in numbers that pertain to life expectancy, the age you’d like to retire, monthly retirement spending, and more. Once you enter your information, the calculator will generate an easy-to-read graphic that provides a score of how much money you’ll have saved and how much you’ll need for retirement. In addition, the system takes inflation and market returns into consideration and it’ll give you an overall percentage of where you are on your goal.