How much should you save for retirement?

How much should you save for retirement?

How much should you save for retirement? This is such a common question, one that I had myself.

There are several ways to calculate how much you’ll need to save for retirement. Let’s look at how much you’ll need to save or see if maybe you already have enough!

How much should you save for retirement?

One of the most popular ways to calculate how much you’ll need to save is to calculate 70% of your current annual salary and then multiple by 25.

The calculation will look something like this:

Current annual salary ($60,000) x 70% x 25 = Required Savings ($1,050,000)

Some people choose to use a higher percentage while others choose to use a lower one if they feel they’ll be able to live a “lean” retirement. Personal finance is personal, and this percentage is definitely the same, so I encourage you to think about the type of lifestyle you’ll want to be living. Having said that, best practice is currently somewhere between 70%-80% of your current annual salary.

Could I maybe already have enough?

If you already have a nest egg saved and are wondering if it’s enough, the 4% rule comes in handy. This percentage comes from a 1998 study that concluded 4% was a safe withdrawal amount that would allow you to preserve your savings throughout your full retirement. The trick here is knowing what your annual expenses are. If you’re budgeting (and I hope you are!), you will know what your current expenses are so this will be easy! If 4% of your current investments equals or is greater than your expenses, than you’re set to retire!

The calculation looks like:

(Savings)$1,050,000 x 4% = (Annual Withdrawal Amount)$42000

Whether you’re determining what you’ll need to retire or if you’re ready to call it quits, one of these simply calculations will give you a general idea. You can always work with a fee based financial planner for a more detailed plan.

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