Throughout your career, you’ve likely dreamed of what your retirement might look like. You imagine the vacations you will take, the place you will live, and the people you will spend your time with.
Making that dream a reality, however, involves commitment, preparation, and lifelong saving. And, in this case, the earlier you start, the better.
The challenge many workers face is knowing how much to save for retirement, and any additional steps to take in order to reach their goals. Knowing an approximate amount to save can make a world of difference in terms of motivation to contribute and successful planning.
1. Become Familiar with “Best Practice”
Many experts agree to save enough so you will have around 80 percent of the income you retire with at your disposal in your sunset years. For many people, that might seem like an impossible feat. Taking it month by month, however, might seem a little more feasible.
As a standard, attempt to save at least 15 percent of your pre-tax income every year you work. This includes what your employer offers to match. Then, as your salary increases over time, so will your contributions. If you start later in life, those contributions will need to be at a higher percentage.
2. Calculate Based on You
As you calculate how much to save, remind yourself that your number will differ from those around you, perhaps even your spouse’s. This is because of the vast number of factors from which this number results.
For instance, some are guaranteed pensions. Others may have children in college or a mortgage that has yet to be paid off. Some are accustomed to a different lifestyle and have different visions of retirement than you do. Some will remain working past 67, while some will retire earlier if possible. Take all of this into account when preparing for retirement.
3. Take Advantage of Employee Perks
If you work for a company, you might be enjoying the perks of your employer matching a percentage of what you contribute. As you plan your contributions, do what you can to reap the most benefits possible, as this is essentially “free” money. For example, if your company says they will match 8 percent, contribute at least 8 percent of your income to take full advantage.
4. Check In On Your Savings Often
As you continue to save, find ways to make your money work for you and help you meet your goal. Make sure you have a diverse mix of investments when possible that include both higher-risk and low-risk options. Be sure to look in on them each year to know if you are still on track. Then, refine your plan when necessary.
5. When You Can, Challenge Yourself (reduce lifestyle…)
Challenging yourself in small ways over time can have enormous benefits on your savings as a whole. For instance, increasing your savings by just one percent might seem inconsequential at first. However, over decades, it accumulates and adds a substantial sum to your retirement.
As you grow in your career and see increases in salary, challenge yourself to avoid dramatic lifestyle shifts. Instead, keep retirement savings as a priority and work with what is left. Contribute more when you are able, along with any sudden cash that might come your way.
Figuring out how much to ultimately save, as well as how to contribute in the most effective way, can be a complex process. Reach out to your local CPA firm in Charlotte for guidance.