Retirement Savings – What Should the Goal Be?
One of the financial blogs I visit frequently is The Simple Dollar, and I recently came across a post that contained a formula regarding how much each of us should save for retirement.
Presently, with each month’s budget we all should save 15-20 percent (15% for retirement and 5% for a cushion account for emergencies and dreams); however, how can we be sure that this will be enough for the time when we choose to retire?
The Simply Dollar’s rule of thumb states “Aim to build a retirement plan that contains 25 times the annual amount you want to have when you retire. So, if you want a total income of $60,000 each year when you retire, you need to have $1.5 million in your retirement account.”
Initially, this may sound like a lot, but keep in mind the continual cost of living increase and market fluctuations and this is certainly a sound goal to strive for. What this also means is that you will know when you are able to retire, so that you aren’t doing so too early or work longer than you need to before pursuing your second career.
Now, if you are in your twenties, this is a very achievable goal with only a minimal deposit being made each month ($100-$200), but for those who are a bit older and are just beginning, you will have to contribute more if you are hoping to retire sooner rather than later. Either way, the peace of mind of knowing what amount you have to reach before letting your boss know you’re working your last year removes doubts and allows you to set your sights on making a plan now to achieve what you want later.