Even if you’re years away from your first wrinkle, it’s never too early to begin preparing and working toward your retirement goals. Unfortunately, not all people do. While 61 percent of workers say that they have started saving for retirement, only 41 percent of workers have tried to figure out how much money they’ll actually need for retirement, according to the Employee Benefit Research Institute’s 2017 Retirement Confidence Survey.
“If you have a dream of retiring, which most people do, you’ve got to have some way of supporting yourself during that retirement,” says Patrick Rehm, Vice President of Regions Investment Solutions. “Unfortunately, your income will probably dip in retirement, so if you want to keep the lifestyle you’re used to living, you might want to start planning early.”
Consider this: If you begin saving for retirement at age 25, putting away $2,000 a year for the next 40 years, you’ll have about $560,000 by the time you retire if your earnings grow at 8 percent annually. If you wait until age 35 to start saving, you’ll end up with $245,000 — less than half what you would have had if you started saving 10 years prior.
“Without the compound growth that comes from saving early, you’re going to find yourself behind the ball when you wake up at 40 and realize you haven’t saved much,” Rehm says.
Set Your Retirement Goals
To get started, first set a retirement savings goal. Determine how much annual income you’ll need to maintain your lifestyle. Because you’ll likely have fewer expenses — your house, car, and debt may be paid off, for example, and you may no longer owe payroll taxes — the U.S. Department of Labor estimates that you’ll need about 70 percent of your pre-retirement income during retirement.
But don’t forget to account for inflation — say, 2 or 3 percent — in the amount you’ll need for retirement. You’ll also need to estimate the number of years you’ll spend in retirement. This will help you determine the annual income you really need in retirement.
Put Your Retirement Plan Into Action
Once you know how much you’ll need to retire, determine how much money you’ll receive from Social Security. The Social Security Administration’s website can give you an estimate of your future benefits. Subtract your expected annual benefits from your target annual income. If you’ll receive a pension, subtract that income, too. This is the annual income your retirement savings must yield.
Once you have all your numbers figured out, input all of this information into an online savings goal calculator, which will help turn your final retirement target into a manageable monthly savings goal.
Stay on Track With Your Retirement Savings Goal
With your monthly savings goal in hand, create a budget that can help you reach it. “Write everything down so you know what’s coming in and what’s going out,” Rehm advises. “You need to have more income than expenses, because that’s your savings. If you don’t, you might need to make some sacrifices.”
Keep in mind that as your life changes — for example, when you get married, have a child, or change jobs — so do your financial circumstances and, by extension, your retirement plan. Regularly recalibrate your goals, budget, and investment vehicles based on your progress.
“Every quarter when your investment statements come in, check them to see if you’re on track,” Rehm says. “Maybe you need to add more money, or maybe the market’s doing well so you can contribute less. You don’t want to drive yourself crazy looking at it every day, but you need to analyze it periodically and make adjustments when needed.”
By starting early and making smart, forward-thinking decisions, you can create and reach an effective retirement savings goal in order to truly enjoy your later years.
