Well, we are all having the “budget talk” this month so let’s get talking about retirement savings. I recently read an article that discussed how to focus on picking a specific [digestible and memorable] number as a retirement savings goal. I think that percentages can be abstract and variable (especially if your paycheck isn’t super consistent). I also notice that retirement information is geared towards older adults that have a pretty good idea about the “future spending needs” as well as their “earning potential.” I think that an age is a pretty memorable number and liked this idea enough to work out the numbers.
The Formula (is easy):
We are talking cash money here and it adds up quickly. This total doesn’t even include compound interest or investment earning possibilities.
This is a great way to get started, but as you get older you should probably be shooting for a number that is based on a percentage of your income rather than based on your age. For example, if a 40-year-old only saved $80 per week, they would save about $4,160 annually. If you make 50k, that’s less than 10% of your income…In this case, I would advise doubling your age or AT LEAST 10% of your income, whichever is higher.
If you do find yourself behind in your savings, there are options! After you turn 50, most retirement plans allow you to contribute an extra $6,000 annually as “catch-up” contributions, which is a great opportunity to increase your so-called “nest egg.”
Resources for Retirement Savings:
I like Fidelity as a resource for retirement planning and Nerd Wallet’s Retirement Calculator (and forecaster). Also, check out my post on benefits here and making sure your employer is working for you. Don’t forget to add Retirement Savings to your 2017 budget talk agenda!