How Much Money Do I Need to Save for Retirement?
You worked hard to get where you are now, am I right? You graduated high school, spent years in college, started your career, and now you’re comfortable with your life. You spend most of your days working throughout the year, and you’ll be doing the same thing until you’re around 65. You should be proud of how hard you worked to get where you are now. You should be so proud, that you make sure you’re all set for retirement, that way you won’t ever have to work another day in your life. Of course, we all wonder how much money we should save up for retirement. I mean, you make anywhere between $30,000 to over $100,000 a year, so how are you going to live off of nothing for 25 more years (roughly) after you retire? Let’s talk about this.
Now, when you think of retirement, you need to ask yourself a few questions. How long do you think you’ll live? How comfortable do you want to be afterwards? What will your living costs be? Will your savings produce enough cash? These are all great questions that I’ll try my best to answer for you.
YOUR GOLDEN YEARS
The first question we asked was how long do you think you’ll live? This sounds a little harsh, but it is something you need to think about. Now days on average, it says either one or both partners will live to see 95. That’s a whole 20 years of freedom if you retire at the age of 65. Your retirement is going to need to last until then. Even if you’re in bad shape and don’t think you’ll live to be that old, at least assume. Save up enough money to last you until you’re 100, that way you’ll be prepared and you won’t be hurting for money.
HOW DO YOU WANT YOUR FREEDOM?
The next question on the list was, how comfortable do you want to live? This is actually a major question you should put into play. It’s been said for people to aim for at least $1 million to $1.5 million, or to save 10 to 12 times your current income you have now. Everybody is different, of course. If you’re spending $50,000 a year for 30 years after you retire, you would need around $1.5 million to hold you long enough. Of course, everybody is different, yes, but who doesn’t like some extra money in their pocket? Now for my mother, she wants to retire and travel the world. That’s actually a realistic dream to have. Most people work so hard for their money, that after they’re done working, maybe they want to go on 150 cruises before they die. You have an open schedule, so why not? You’ve spent your whole life cooped up in the same job living at the same house. It’s normal to maybe want to see England or France, or maybe even Canada. I would LOVE to see every country out there! Wouldn’t you?
So if you’re planning on traveling the world after you retire, put that into the equation. Let’s say you go on one cruise a year and travel to a different country once a year also. Let’s say in total, the average cost for a cruise came out to be $3500 for two people. If you do one cruise a year for 30 years, that would be $105,000 total. Let’s say a trip to a different country is around $10,000 for two people. If you do that once a year, that’ll come out to a total of $300,000! So, a trip to a different country and a cruise once a year will be $405,000 for 30 years. If you saved up $1.5 million, that’s already a third of your savings. Most people actually might be able to live comfortably this way, but would you? That’s something you would need to start thinking about and preparing yourself for.
INTERESTS IN SAVINGS
Another question we had earlier was, will your savings produce enough cash? According to Morningstar, a Chicago-based investment research firm, in order for a retiree to produce at least $40,000 a year during retirement, they would need about $1.18 million in their savings to support 30 full years of retirement. This was calculated using 6% revenues and 2.5% inflation. This is something to definitely think about!
SAVE, SAVE, SAVE
Some people start to panic after retirement because they fear they haven’t saved enough money to last the rest of their lives. If this is the case, then you should try to cut back on a few things. Try paying off your house and car before you retire. You really don’t need any extra bills taking money from your pockets. Instead of owning two vehicles, try sharing only one between you and your spouse. If you aren’t looking forward to seeing the whole world, then maybe cut back on vacation expenses. Or if you do want to travel the world, then try budgeting when you buy tickets. Instead of first class on the plane, choose a coach seat. Wait until tickets are cheap. Or sign up for a point system with your bank. A lot of banks now days have a point system that adds up all your travel points and you’ll eventually earn enough for a free plane ticket or cruise or hotel.
Like I said earlier, retirement can be a scary thing. We get so comfortable in our environments that we aren’t ready for change. You get use to the pattern you form with your life. Wake up, eat, go the work, come home, eat, go to bed. We get so use to our patterns and every day routines that when it comes time for change, we aren’t ready. If you aren’t prepared for change, then yes, it is a scary thing. The most important thing you need to do is be prepared. Start preparing yourself when you’re young. My mother actually always gets onto me about saving up for retirement. I laugh her off because I’m so young. Why would I need to save for retirement when I’m still in my 20’s? I still have around 40 years left! Time flies by, and we all find that so easy to forget. Start saving for your retirement today, that way you’ll be more than prepared for it when it comes time!