Are You Saving Enough for Retirement?
By Maura C. Schauss, CFP®
Thanks to the Internet, there’s no lack of advice or formulas to follow for every area of your life. This is especially true when it comes to money and it often feels like we are inundated with news articles and stories about our impending retirement. Unfortunately, a lot of the advice can be contradictory or overwhelming. We are told that we need X amount for a 20-year retirement, or that we should contribute X amount to our 401(k). The problem with these so-called rules is that they don’t take into account your unique situation or unexpected circumstances that may arise.
Retirement is arguably the biggest financial milestone you’ll reach in life, so how do you know if you’re on track? Are you truly saving enough for retirement or are you being fooled into thinking you’ll be financially ready when the time comes?
Don’t Compare Apples To Oranges
It may surprise you, but if you have at least $1 saved for retirement, you’re doing better than 41% of those surveyed, and if you have at least $25,000 saved, you’re in the top 59%. (1) Though those numbers may make you feel good about yourself, they don’t guarantee you a comfortable retirement. While you may not know exactly how much you need for retirement, we can be sure it’s more than $25,000.
Unfortunately, 48% of workers have never calculated how much they will need to live the way they want to when they retire. (2) If you don’t know how much you need, how will you know how much to save? Unfortunately, figuring out your savings goals isn’t as easy as plugging some data into an online calculator. Everyone’s situation is unique and factors such as years from retirement, current savings, the economy, and retirement lifestyle expectations will affect the outcome.
The general advice from financial professionals is to save 10-20% of income towards retirement, but even that is a vague generalization. If you start saving in your 20s, 10% might serve you well due to compound interest, but if you are getting a later start, you will need to save more. Is there any way to know if you’re saving enough?
While charts and calculators won’t speak to your personal situation, they can give you an idea of what your savings should look like if you want to meet your goals. Take a glance at the chart below. Instead of showing you what you should save monthly from here on out until retirement, it lets you know if you are on track by looking at what you have saved up to this point. From there, you can evaluate what you need to do if you are behind.
Using a benchmark like this one personalizes your progress by reflecting how much you will need in retirement based on your actual circumstances. Many people rely on Social Security or pensions to provide the bulk of their retirement income, but the more you earn, the less Social Security you will receive, so what you need to save to retire on will change based on your pre-retirement income.
Optimize Your Savings
There are many uncertain considerations when it comes to your retirement financials, but one thing you can control is how much you save. Social Security may change, inflation will increase living expenses, medical costs are unpredictable, and what the economy will do is anyone’s guess. But if you consistently save as much as you can, you are setting yourself up for success. If you already feel maxed out in your budget, make it a habit to save any extra money that comes your way, whether it’s a bonus from your employer, an increase in pay, or a tax refund.
When determining the amount you will need to retire, plan on a minimum of $15 to $20 of savings per dollar of the shortage between your Social Security and/or pensions and your retirement living expenses. For example, if your calculations show that your retirement expenses will be $25,000 a year more than what is coming in from outside sources, you will need at least $375,000 to $500,000 in savings to ensure you can afford your current lifestyle. The more you save, the more you are in control of your financial future.
Life moves along rapidly and brings many changes along with it. Once you’ve set your goals and calculated how much you need to save, make it a habit to reevaluate once a year to make sure you are still on track to meet your benchmarks. It’s also a good idea to review your progress if you go through any life transitions such as a job change, marriage, divorce, or the birth of a child.
Take Control Of Your Retirement
One in four people has no idea how much they should be saving for retirement. (3) If this is you, the first step is to consult with a financial advisor. At Washington Wealth Advisors, our mission is to proactively help you achieve your goals with confidence. We work to assess where you are today in light of your long-term goals and provide you with a roadmap to get you where you want to be. No matter how old you are or how little you have saved, it’s never too late as long as you get started today. Let us help you create a plan to retire when you want to by scheduling a consultation and clicking here for your 60-second financial check-up!
About Washington Wealth Advisors
Washington Wealth Advisors is an independent registered investment advisory firm serving high net worth families and small businesses. We focus on holistic financial planning and comprehensive investment management. Leveraging our core strengths of unbiased, active investment management together with a detailed annual financial planning capability, we serve your comprehensive investment and financial planning needs.