If you plan right, there will come a day when you hang up the gloves, so to speak, on your working days. If you’re asking yourself, “How much do I need to retire?” what’s really on your mind might be at what point you can stop working for a living and start living for the dreams, passions, people, places, interests, and causes that matter most to you. The three simple questions below will help you solve your retirement savings riddle.
What does retirement look like for you?
Beverly Hobbs, AAMS®, an LPL Financial Advisor with SAC FCU Wealth Management, says the first question she typically asks people who come to her for retirement advice is what they want to do when they retire. “Whether you want to travel the world or travel across town to see family and friends, it’s important to think about what you want to do when you retire,” says Hobbs. “Hobbies, passions, interests, and lifestyle choices all cost money. Knowing how you want to live during retirement helps you set a specific goal to save toward.”
One effective way to think about it is in terms of your current income. Will you need 75% of your current income to live the retirement you want? More? Less? Take a moment to consider the expenses related to your ideal retirement and calculate how much that will cost annually.
Once you have that number, plug it into SAC FCU’s free Retirement Calculator as a percentage of your current income. Another major factor to consider here is how much time you have to save, which leads to the second question.
When do you want to retire?
Once you know how much you need to save and how long you have to save it, it’s easy to break that out into a monthly, yearly, or even weekly goal. Do you hope to retire in the next 25 years or do you have a little more time? The answer will help you determine how much you need to be putting aside now.
If you’re in your twenties or thirties, for example, setting aside $20 per month now could save you from having to siphon off $400 per month later. “Given a 5% interest rate, even $500 per year adds up to $17,000 after 20 years of growth,” says Hobbs. “Saving is all about the time value of money. The longer you have to let it grow, the more you’ll have for retirement.”
Determine your ideal retirement age and put that in the calculator, as well. Finally, one more question to ask yourself.
How are you saving for retirement now?
Knowing how much you already have saved will help show how far you have to go. Track down the statements from a work 401(k), IRA, or other savings you plan to use for retirement. Add the amount already saved to the calculator, plus the percentage of money you’re already setting aside for retirement. (If the answer is “none,” this calculator can still help you determine an overall goal. Then you can go back and plug in different percentages to see how much to need to save each month.)
Remember: Even if you set up a 401(k) through your employer, it’s easy to neglect it. Hobbs says an easy way to avoid the set-it-and-forget-it mentality is by making a note on your calendar to check your 401(k) on your work anniversary or when you elect your benefits each year. “Another great time to check and change your 401(k) makeup is when you’re getting a pay raise,” says Hobbs. “Use it as an opportunity to raise your contribution level to your account.”
What kind of retirement do you want to enjoy? How are you saving for it?
Are you ready for retirement? Download our free worksheet for help planning for the retirement you want.