How much should you save?
As a rule of thumb I suggest saving 10%-15% of your income yearly. If you’re making between $30,000 to $75,000 annually. I strongly recommend you save no less than 10% of your own money, even if money is tight. Find a way to lower your expenses so you can afford to save. Do not count your employer match in this 10%. Keep in mind this is just a general rule if you haven’t really taken the time to think about how you want to live in retirement. Ideally you want to max out your retirement account every year but depending on how you envision your retirement situation you may not actually need to max out your account every year. Keep in mind the more you save, the more you’ll have in retirement. Saving this amount should replace 60% – 80% of your current income depending on your annual rate of return.
How do I know how much I need to save?
Ultimately you’re just trying to determine, at what point you can afford not to work and still be able to live. This typically comes down to a certain amount of money saved. For almost everyone this number will be different. The reason for this is because everyone has different interest and spending habits. Many things can factor into how much money you need for retirement. Everyone should sit down at some point and think about how they envision retirement and come up with a plan to get there. In this article I will try to help you figure out that number.
Will you own a house?
If you’re renting in retirement it can be hard to estimate your housing costs. If you own a home your cost will pretty much be the same each year aside from taxes and insurance, which can go up or down.
Will the house be paid off before retirement?
Housing could probably be one of your largest expenses in retirement. If your house is paid off, you may not require much for essential living expenses.
If the house isn’t paid off would you consider downsizing to lower housing costs?
If you started saving late or didn’t quite hit your retirement number, downsizing to a smaller or less expensive house could lower your living expenses.