Retirement Planning: How Much Should You Be Saving?
March 8, 2023
No one likes to think about the fact that someday we’ll be as old as our parents, never mind our grandparents! However, anyone who has stepped foot into the workplace knows that time evaporates at an alarming pace once we begin the daily grind. With this in mind, many of us, myself included, envision a comfortable and relaxing retirement when the time comes that we are deemed surplus to requirements in the workplace. We can finally kick back with our favourite cocktail (Or other non-alcoholic beverages for those who are more health conscious!). However, not many of us have a step by step or even the foundation of a plan that can help us achieve our cocktail-sipping, beach lounging dreams.
Creating and following a well-thought-out retirement plan can help you meet your lifestyle goals and ensure a secure future. Before you can create a plan, you need to know how much you should be saving each month. When it comes to retirement planning, it may sound obvious but it is important to save as much as you can now whilst you are consistently earning so that you are financially secure in your later years. It can be difficult to have the willpower to put up your finances into an account you likely won’t touch for many a year, but this is the first and most important step to achieving financial independence when you are older. The amount you should be saving depends on certain factors such as your age, current income level, and your desired retirement lifestyle.
The general rule of thumb is that you should be saving at least 10–15% of your income each month, regardless of how much you earn. This could seem impossible if you are living paycheck to paycheck, but you could start by putting in as little as 3-5% of your monthly income. Over time, it can make a huge difference through the power of compounding, especially if you have extra sources of income. Most experts agree that the ideal amount to save per month would be 15-20% of your income. With this being said, if you are on the younger side and/or have a lower income, you may need to save more in order to reach your retirement goals. If you need guidance, check out my previous article on how to budget effectively where I have outlined a number of techniques that can help you when it comes to saving your capital.
In addition to consistently saving a percentage of your income, you should also invest in a retirement plan such as a 401(k) or IRA. These plans are designed to help grow your nest egg for when you retire. A 401(k) plan is a retirement savings plan sponsored by an employer that allows employees to save and invest a portion of their paycheck before taxes are taken out. Contributions are typically made through payroll deductions and may be matched by the employer. The funds can be invested in a variety of different investment products, including stocks, bonds, mutual funds, and exchange-traded funds.most countries have an equivalent of a 401(k) so it would be wise to look up exactly what the equivalent scheme is in your country of origin
An IRA (Individual Retirement Account) is a type of personal retirement arrangement that allows individuals to save for retirement with tax-deferred growth. Funds can be invested in a variety of different investment products, including stocks, bonds, mutual funds, and exchange-traded funds. Contributions to an IRA are limited by income and other criteria, and there may be tax implications for taking any distributions from an IRA before retirement age. Both of these types of plans have tax benefits which can help you save more for the long-awaited retirement fund.
It is important to note that there is NO one-size-fits-all approach to retirement planning. Everyone’s financial situation is different, thus each person needs to develop a retirement plan that works best for their own needs and goals. As long as you are saving and investing, you should be able to enjoy a comfortable retirement life. Do remember this – no matter your age or income level, it is important to start saving for retirement as early as you can. Even if you are only able to save a small amount each month, it is better than nothing and it can add up over time. Be sure to adjust your savings rate as your income and age change, to achieve your retirement goals.
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