Reading through the vast information online about saving for retirement, it’s easy to find contradicting and unclear answers. So, when might be the best time to start saving for retirement? The truth is, there’s no blanket timeline that’s a fail-safe solution that will work for everyone. Everybody has different lifestyles, different expectations, different risk tolerances — so why should retirement expectations be any different? That said, there are some tips that find common ground among all ambitions people planning their retirement nest egg.
A study conducted by Northwestern Mutual shows that nearly 80% of Americans are “extremely or somewhat concerned” about affording a comfortable retirement. The study also shows that 21% of Americans have no retirement savings at all. Furthermore, almost half of the adults who participated in the study have not taken steps to prepare for the likelihood that they might outlive their savings.
What’s even more troubling, according to the article, is more than half of Americans see themselves working up to or beyond 70 years old compared to the traditional retirement age of 65 years old. The dominant reason behind this is they do not think they have enough money to retire comfortably.
In this article:
- How Much Do I Need To Have Saved for Retirement?
- What Age Should You Start Saving for Retirement?
- How Much of Your Salary Should You Put Toward Retirement?
- Should I Also Have an Emergency Savings Account?
- How Do I Start Saving for Retirement?
What You Need To Know About Saving For Retirement
How Much Do I Need To Have Saved for Retirement?
As mentioned above, determining exactly how much to save for retirement depends on a lot of factors. What exactly is your goal when you retire? What do you plan on doing during those golden years of your life? Which luxuries are you willing to sacrifice today so you can reap the benefits tomorrow?
One rule, known as “The 80% rule”, suggests saving around 25-30 times of 80% of your annual salary before retiring. This means that if you are currently earning $100,000, then you should have saved up $2 million upon retirement to make sure that you can live a comfortable life for the next 25 years.
However, this could present a challenge, as it does not account for emergencies that may occur during that time period. This stretches your budget and makes things difficult for you at a time when you should focus on relaxing.
A better mentality to have for retirement is to focus on wealth generation and not simply wealth accumulation. This means that while it is good to build up wealth for your retirement, it is equally important to make sure that you are still continuously earning. The 80% rule is a good rule to follow for this. If you want to make the most of those years, though, you have to be able to still generate wealth passively.
What Age Should You Start Saving for Retirement?
A lot of people ask “When might be the best time to start saving for retirement?” The answer to that is simple. Now. It does not matter whether you are fifty or fifteen. The earlier you start saving for your retirement, the better.
Setting yourself up for retirement can be a great ordeal. It involves a lot of planning for something that is usually very far off in the future. Most people would rather solve problems they have today. However, the sooner that those very same people realize the importance of planning ahead, the easier that future will be for them.
The reason why nearly half of Americans believe they can no longer afford to retire in the traditional retirement age is that they do not believe that they have enough to retire and live comfortably afterward.
Retirement becomes so much easier the earlier you save for it. A 45-year old man planning on building $1 million for his retirement would have to start setting aside $50,000 every year to reach his goal. On the other hand, a 25-year old man with the same goal would have to start saving $25,000 every year. Of course, the 25-year old man would most likely be earning less than the 45-year old. However, if you start saving a certain part of your earnings that early, then by the time you reach 45-years-old, you wouldn’t have to sacrifice as much anymore.
Starting early lessens the pressure that it takes for you to reach your goal. It also opens more opportunities for you to not just have that sum of money saved, but also to make that money continuously work for you even in retirement.
How Much of Your Salary Should You Put Toward Retirement?
Traditionally, one of the most famous savings practices is the so-called “50/20/30 Rule.” The rule states that 50% of your income should go to needs, 20% to savings, and the remaining 30% to wants.
However, that should only serve as a guide. If you start saving 20% of your earnings at 20 years old, then perhaps it may work. Most people, though, start thinking of retirement at a later age of around 40-50 years old.
Again, keeping in mind that everyone has different situations, saving for retirement will involve a certain level of commitment and sacrifice. Lessening the amount allotted for wants and transferring that to the amount allotted for your savings is a long-term sacrifice. It lessens the luxuries you are able to enjoy today in exchange for a burden-free tomorrow.
The amount of salary to be set aside for retirement varies from person-to-person. It depends on varying factors such as your planned retirement age, the passive income you earn after retiring, your age now, etc. A retirement calculator can help you figure out exactly how much you need to retire.
Again, keep in mind you always have to be willing to make sacrifices if you are aiming for more. Putting in extra work today should help you achieve your goals much easier tomorrow.
Should I Also Have an Emergency Savings Account?
Yes. While it is important to prepare for retirement, it is equally important to be ready for all types of emergencies.
Emergencies happen to everyone. One reason why people are not able to save for retirement is they are not financially prepared for emergencies. Improper budgeting forces people faced with these unexpected events to draw from money that was supposedly saved for other purposes like retirement.
That is when an emergency fund comes in. If you are able to set aside a sum of money that is kept for emergencies, then you may not need to compromise your budget.
To stay on the safe side, a good option is to have an emergency savings fund that is equal to at least six times your monthly expenses. This would allow you to continue living the same lifestyle if, for some reason, you suddenly lost your job, for example.
As much as possible, make sure that emergency fund is both readily available and continuously growing. Investing in mutual funds, for example, is an option that takes care of both those needs.
How Do I Start Saving for Retirement?
Fortunately, there are a wide variety of investment options to choose from nowadays. One of the most popular is opening an IRA. This could either be a Traditional IRA or a Roth IRA. Depending on which one you open, it provides differing tax benefits that help you save for retirement.
You can invest the funds you saved here in stock market or in alternative investments like gold, silver, and cryptocurrency. Investing in real estate is another way of saving for retirement. Turning it into a property rental business could support your income generation long after you retire.
Don’t forget to download, save, or share this handy infographic for reference:
The best time to start saving for retirement is now. No age is too late to start acting on it. It is important to ask for financial advice and know as much as you can before you start and during the process. That way, you are able to maximize all the resources you have. Remember your retirement should be the golden years of your life. The earlier you start planning and saving for it, the more you’ll enjoy those days.
Have other thoughts on when the best time to start saving for retirement might be? Share them with us in the comments section below.