If your household earns over $30,000 per year, you are going to need more than social security to keep up your lifestyle in retirement. This is why many financial advisors recommend saving enough to replace 80% or more of your pre-retirement income.
When it comes to retirement planning, most people think a one-size investment strategy fits all. Here are three reasons why retirement planning does—and should—work differently for different people.
Retirement Looks Different For Different People
- How much time do you have to save before retirement?
- What do you plan to do while you’re retired?
- Where do you want to live in retirement?
- Where will your income come from in retirement?
Your answers to all of these questions will begin to determine what your retirement plan will look like. At the same time, your risk tolerance, time, and income needs will determine which investment vehicles are ideal for meeting your savings and future income goals.
The answers will vary by person, which is why it’s crazy to think a one-size-fits-all retirement plan can work for everyone.
Save a Little or Save A Lot Per Paycheck Contributions
15% of total AGI is the standard percentage many people put towards their 401(k). Yet, many people struggle to make ends meet, let alone think about putting money away into an account you can’t touch for a long time.
Here’s the good news: the amount you save isn’t as important as saving consistently. Start small with $10 or $15 per paycheck and automate it. With each pay increase you get, increase the amount you save each paycheck and stick with it.
As long as you leave your money alone, you can take advantage of the eighth wonder of the world: compound interest. No matter how much or little you save, you can earn, say, 5% per year just by leaving your money in the S & P 500. That means saving as little as $100 per month could earn you a total of nearly $150k over 40 years.
Some Employers Will Help You
Most employers offer or may be required to offer retirement plans such as 401(k), 403(b), Thrift Savings Plans, or similar style plans. But some companies may also offer to match every dollar (or a portion) you contribute. These employers provide matching funds to employees who meet a certain criteria or length of employment.
If you’re among the lucky few who are employed by employers that provide matching funds, you may not have to contribute as much. However, always remember that the more you put away, the more you’ll have for your future retirement.
More Retirement Planning Advice
Retirement planning just can’t look the same for everyone. Your unique retirement strategy depends on how much you need to save, what you’re willing to contribute each paycheck, and how much your employer matches your contributions. It also may depend on how much time you have until retirement and how risky you may be.
The important thing to remember is to save as much as you can as early as you can for as long as you can.
Are you looking for more retirement planning advice to keep you on track? Then check out my retirement courses and become a smarter investor today!