Let me be blunt: If you don’t know the answer to this question, you’re setting yourself and your family up for potential disaster. If you don’t know the goal, you can’t set up a plan to reach it. If you don’t have enough money when you’re no longer able to work, you face a potential life of poverty at a time when you need the most care. So let’s figure this out as best we can.
Hopefully, Social Security will still be around in its current form when you retire. As of now, it’s like a pension. You pay into it all of your life and you get a set amount once you reach what it calls retirement age. If you were born after 1940, you can start taking benefits at age 62. It would be good if you didn’t but that’s the earliest assuming you don’t fall into the numerous exceptions. Calculate your retirement age here.
Social Security is nice but you aren’t going to rely on it for your full income. The average benefit check is $1,335 as of June 2015. That’s only $16,000 per year. If you and your spouse worked, you’re bringing in about $32,000. you can live on that but not very well, especially if you have health concerns.
Are you or your spouse non-working? Read more about retirement saving here.
How Much Do You Need?
That question very much depends on the specifics of your money situation but I can give you a very basic answer: AS MUCH AS POSSIBLE!
It depends on the study you read but what we know for sure is that somewhere between 55% and 70% of Americans aren’t saving for retirement. Check out this chart. If you’re 30, you should have around $150,000 saved already. If you’re 40, let’s call it $350,000. At 60, you should be a millionaire–at least according to the chart.
The facts are that most workers these days aren’t anywhere close to those numbers. Now, let’s remember this–these are 401(k) balances where the employer is probably giving you 50 cents for every dollar you invest. We’ll talk more about that in a minute.
That’s why I say you need to save as much as possible. You’re most likely behind. Unless you’re a high net worth person, breaking down how much isn’t important but if you want to get a little more detailed, use this calculator.
Use Your Employer
Want to know what makes me mad? As in, actually mad? People who work for a company that offers a 401(k), 403(b), or some other plan, actually matches the employee’s contributions, and the person doesn’t take advantage of it. If that’s you, please understand this: Your employer is giving you free money.
You have to contribute as much as you can to get the maximum amount of free money from your company. Normally they’ll match 50 cents for every dollar up to 6% of your salary. So contribute up to 6% of your salary. You have to. I’m making you. It’s not an option. It’s FREE money!
If you make $50,000 per year and contribute $250 per month, your employer throws in an extra $125 for a total of $375. Use this calculator if you want to do your own calculations.
If you’re 30 and have nothing saved, maxing your 401(k) will net you about $525,000 by the time you reach retirement age. (Here’s where I got those numbers) That, along with Social Security, puts you in a much more comfortable place when you retire.
There’s more to it than this but let’s land on some easy to understand advice that PROBABLY applies to you: If you aren’t saving at least a couple of hundred per month for retirement, you’re probably in a financial danger zone. What can you cut out of your spending to get as close to that goal as possible? Remember, live on a budget now so hopefully you can be more carefree with your money later.
Have a retirement question? Click below to ask me. I respond to all questions.