What is your rule of thumb for preparing for a secure retirement? What percentage of my income should I save every year?
Unfortunately, there is no magic formula for how much to save because the amount of money you may need to live comfortably in retirement will vary from others.
A generally accepted rule of thumb is that you should plan on saving enough so that your nest egg will yield between 75% and 89% of your pre-retirement income. New surveys, however, suggest a figure of 125% because of longer life spans and escalating healthcare costs. (You can use our Dolans.com worksheet to see if you’re saving enough for retirement.)OK, let’s break it down a bit more. Here are some general guidelines for how much of your income you need to start saving and investing at your age to be on track for a comfortable retirement:
Need some encouragement? Consider the power of compounding, which may be all the incentive that you need to take that important first step.
A 20-year-old investing just $50 per month and earning 10% per year will accumulate more than $380,000 by age 65. And that number will be much larger if the amount invested per month increases as this 20-year-old earns more over time.
You’re probably a little bit older than 20, but it’s still note too late. A person in his/her 40s can invest $100 per month and will still have a small fortune at age 65.
Putting $50 to $100 aside each month, especially in light of today’s high prices, may not be an easy task for you, but it will pay huge dividends down the road. There are actually quite a number of fairly easy ways to begin investing, so don’t panic. Just keep our 10 Simple Rules of Investing in mind…and get started now!
-Daria Doloan, guest blogger