Ah, the golden years...those glistening years you worked so hard to reach. It would be disappointing to open the pot at the end of your rainbow and find it’s only half full.
I often advise people to “try out” their retirement plan. This would mean living for a few months on what you plan to live on and how you plan to live financially once you retire. This gives you an opportunity to really see if those plans will work for you or if it won’t be enough. This trial period offers you a chance to find the weak spots in your planning and make adjustments.
Trying out your retirement is all fine and good, but how do you start? How do you know how much to aim for? The amount you will need to retire depends on several factors like your desired lifestyle, when you want to retire, and what your income currently is. The general rule of thumb is to save 7-8 times your annual salary. Remember, money is emotional, your rainbow and pot are as unique as you are. No two retirement plans are exactly the same.
Analysts have reported that many Americans’ expectations for retirement are higher than what their current savings will allow. A survey done by Northwestern Mutual found that the average American thinks they will need $1.46 million in retirement savings to retire comfortably, this is up from last year, in which American’s reported a retirement goal of $1.27 million, a 15% increase. In 2020, we saw a target goal of $951,000, resulting in an increase of 53% just in 4 years. That is pretty significant. Unfortunately, the average retirement account at age 60 is $610,00. That’s a pretty big gap.
Some things that will help you along the way: Start early and put away as much as you can, try saving a specific percentage of your income, and include long-term investment strategies. The average American starts saving for retirement at about age 31. This starting point allows for 30-40 years to save, but starting earlier allows for more growth and better planning.
Another thing to consider while planning is the impact taxes will have on your retirement savings. Most retirement accounts have an early withdrawals (before age 59 ½) penalty 20% tax. Your retirement plan should include strategies to address and minimize the tax burden on your withdrawals. There are other ways to save for retirement than just a “retirement account.” There are myriad financial tools that can help strengthen your retirement savings.
My advice is to not wait. Don’t wait to start planning and putting money into a retirement account. Don’t wait to try out your retirement, find the weak spots now. Don’t wait until retirement to realize taxes are eating up too much of your income. Start now. Make a plan and practice that plan. Secure tomorrow, especially those golden years.
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