How Much Should I Have Saved?

Retirement can be a scary thing, especially if you’re not prepared. It is no secret that most people feel unprepared when it comes to saving for retirement. They either were unable to save enough or thought they had enough until the time came. As a general rule of thumb, a household needs about 70% of the preretirement income to maintain their lifestyle. Social Security can replace about 36% but how do you make up for the rest?

In a perfect world, a person will start saving in their 20s and save about 10% of their pay annually. But most people do not start saving until later down the road. So if you are playing catch up, what behaviors can you adopt to make sure you are set for retirement?

Everyone knows that saving for retirement can be a drag in the present, but your future self will definitely be thanking you for handling your money responsibly. Some of these behaviors you should use to play catch up may seem obvious, but a surprising number of people don’t use them.

  1. Create a budget- This is finance 101; budgeting your monthly expenses versus your income is a great way to monitor and manage your money. By doing this, it will present you with what you have and what you don’t have. It is important to have an understanding and being smart with your money. You can budget in saving for retirement so you already know you won’t have that money for the month. A great tool to use to begin creating a budget is Mint.com. By creating an account and linking your checking, savings, credit cards and retirement accounts you can easily see where your money is going and begin to create a budget from there. It is easier than starting from scratch and it is free!
  2. Take advantage of your workplace retirement program- If your employer is willing to take out 10% of your annual pay to put into an account for you, do it. If you employer is willing to match whatever you put in your retirement account on an annual basis, do it. It is basically free money.
  3. Calculate how much income you will need to replace in retirement- It is hard to forecast what life will be like outside of the workforce. You have spent a large amount of your life working, having an income and providing for your family. It is important to figure out how your savings will translate into a monthly retirement income.
  4. Discuss your retirement lifestyle with your family- Life changes after retirement, but it shouldn’t change drastically. Having a mutual understanding of how your family will live is beneficial to the lasting of your savings.

There is no perfect way to go about saving for retirement. Life gets in the way and it is hard to have everything go according to plan. But by understanding the importance and changing your choices, it can make a world of difference when it comes time to retire.