Look around — it’s not pretty. With joblessness and foreclosures, why waste time with retirement planning? Because you must. For once, let’s be ahead of the trend. We know something is going to happen to Social Security. We just don’t know what or when. But, we do know it won’t be good. Pensions have long gone the way of the pterodactyl. Regardless of what your financial outlook is currently, collecting cans in your old age is most unappealing. Start planning for retirement now.
When should I start saving for retirement?
Simple — as soon as you can. The perfect time is immediately upon completing undergrad or trade school and beginning your career. The sooner you begin saving, the more time your money has to grow. Each year’s gain will generate their own gains next year. Known as compounding, this method is rather compelling.
Here’s an example from Money magazine that highlights how starting early can decide if you’re comfortable as opposed to “just OK.” Start at age 25, put aside $3,000 a year in a tax-deferred retirement account for 10 years. Then, completely stop. When you reach 65, your $30,000 investment will have grown to more than $472,000, (assuming an 8 percent annual return), even though you didn’t contribute a dime beyond age 35.
Now let’s say you put off saving until you turn 35, and then save $3,000 a year for 30 years. By the time you reach 65, you will have set aside $90,000 of your own money, but it will grow to only about $367,000, assuming the same 8 percent annual return. That’s a huge difference.
How much money will I need in retirement?
Typically, you will need 70 percent of your pre-retirement salary to live as you did immediately before retirement. That’s if you own your house free and clear — and if your health doesn’t throw any curve balls. If you plan on building a retirement home of your dreams, exploring the world, or going back to school for an advanced degree, you’ll need 100 percent of your pre-retirement salary. Perhaps, more.
Be realistic with estimates surrounding what kind of expenses you will have in retirement. Brutal honesty about how you want to live in retirement and the costs associated with that life is essential. These estimates are important when it comes time to figure out how much you need to save in order to comfortably afford your retirement.
Begin estimating your retirement costs by taking a closer look at your current expenses in various categories, and then estimate how they will change. For example, your mortgage will be paid off by then and you won’t have the same commuting cost, if any. But, remember, aging health-wise can be increasingly costly particularly if you now suffer from a chronic illness like diabetes or high blood pressure.
How much should I save?
Judging from the economy of the last few years, “until it hurts” is the answer. Realistically, 10 to 15 percent of your income should be socked away for retirement, starting in your 20s.
