Daydreaming about your last day on the job is easy. Getting there takes work.
Right. How much depends on what you want your post-work life to look like. One rule of thumb is to plan to replace 70% of your pre-retirement salary each year. So if you earn $75,000, you’d need around $52,000...times the number of years you’ll be retired. (Hint: the avg woman in the US lives to about 81.)
Go for it. Keep in mind that some of your expenses will be different later. Healthcare and travel costs may go up (hey, Bora Bora), while other expenses go down or disappear. Especially if you’ve paid off your mortgage, car, and student loans by then. If your retirement income puts you in a lower tax bracket than you are now, you’ll also owe less in taxes. (Psst...some states don’t tax income at all.)
Once you’ve got an idea of how much you’ll need each year, do the same math as above.
Don’t panic. One survey found that about three quarters of Americans think they won’t have enough money for retirement. But the good news is that you don’t have to save it all. When you invest, your money has a chance to grow exponentially over time. And the earlier you start, the more you can have later. (Thanks, compounding.) Just try not to touch the money too soon. Future You says ‘thanks for keeping your hands to yourself.’
Setting benchmarks can also help your goal feel more achievable. Fidelity breaks it down like this: aim to have one year’s worth of salary set aside by age 30. Then three times your salary by 40, six times by 50, and eight (or more) times by the day you set your forever OOO message.
Here are a few:
If your employer matches some of the money you put into your retirement account, try to contribute at least enough to max out their help. Free money is the best money.
Automate transfers so you can send money straight to your 401(k) or IRA – without ever seeing it in your checking account. That way, you’ll never forget to contribute or accidentally spend that money elsewhere. Ask HR if you need help setting this up.
Get more involved in your retirement investments. So you can be sure that they match your goals, age, and appetite for danger. It’s called asset allocation, sweetie. Look it up.
There’s no magic number everyone needs to hit to retire. Get a personal, reasonable target by looking at your current financial situation, and hitting imaginary fast forward to see how it could change over time. Then start investing to get where you want to go ASAP.
Want more info about saving for retirement? Get it here.
Skimm'd by: Ivana Pino, Elizabeth Smith, and Elyse Steinhaus
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