Saving for Retirement
We all look forward to retirement—our “golden” years, when we can sit back and enjoy what life has to offer, engaging in hobbies, traveling, learning something new. The reality of retirement, though, is that some people don’t have enough in reserves to afford everyday expenses. For many of those people, retirement isn’t about not working—instead, they’re still at the grind with part-time or even full-time jobs. That’s why it’s important to plan and get ready for retirement as soon as possible. But even if you haven’t had it on your radar, it’s not too late to start saving—you just might need to make a few extra sacrifices.
How Much Do You Need to Save for Retirement?
This figure varies per person and depends on how much you intend to spend annually after you retire. One way to look at it is to determine how much you spend now; then multiply that by 25 to come up with your overall savings needed. So, for example, if your expenses (for your mortgage, food, utilities, clothing, gas, entertainment, and luxuries) amount to $5,000 each month, that means you spend $60,000 each year. Multiplying that by 25 reveals your total retirement savings should be $1.5 million. It’s no surprise that numerous studies show that many Americans are nowhere near the amount they’ll need to have on hand for retirement.
What You Need to Know About Retirement Accounts
- 401(k). One of the biggest benefits to an employer-sponsored 401(k) plan is that contributions are automatic—you won’t even notice it’s happening because the money goes into the account before it hits your paycheck like clockwork. With a 401(k), you’re able to save more than three times as much each year as you can with an IRA, and, as long as your investment stays in the plan, you owe nothing to the IRS as it grows. If your employer offers a match for your 401(k) savings, don’t leave that on the table—contribute enough to take advantage of what they offer.
- Traditional IRA. The traditional individual retirement arrangement (IRA) lets you fund the account using pretax dollars—you’ll pay tax on the money when you withdraw it (and you may even have to pay a penalty if you take a withdraw before you reach 59-1/2 years of age).
- Roth IRA. The Roth IRA is funded with post-tax dollars; your tax break comes when you withdraw the funds after you reach the age of 59 ½ (you may have to pay taxes and/or a penalty if you take a withdraw before you reach 59-1/2 years of age or within 5 years of making the first contribution to a Roth IRA). The biggest benefit of a Roth IRA is that qualified withdrawals are tax-free and penalty-free, which means these distributions go completely to you—none of it to the IRS. You’re also never taxed on distributions of your contribution amounts since you already paid taxes on them.
How Much to Save for Retirement by Age Range
20s—Starting young is the best time. In your 20s, even if you aren’t making as much as you’re likely to make later in your career, contributing as much as you can, will allow that nest egg to grow. By the end of your 20s, shoot to have saved as much as you earn in one year.
30s—In your 30s, you’re likely starting to earn more than entry-level salary, so you can sock away more. Try to have twice your salary saved by 35 and three times by the time you’re about to turn 40.
40s—At this point, you’ve likely got at least a quarter of a century before you retire, so ramping up savings now will give you that much more of an account when the time comes to quit work for good. Try to have four times your salary saved by 45 and six times by the time you’re about to turn 50.
50s—You still have some time before retirement, and hopefully now you’re earning a fair amount annually. Shoot to have seven times your annual income saved by 55 and 8 times before you turn 60. In terms of retirement savings, what’s great about turning 50 is that you’re allowed to contribute more to your retirement account by using “catch-up contributions” that have greater caps than regular contributions.
Calculator for How Much to Save for Retirement
If you’re feeling overwhelmed by everything you need to do to prep for retirement, never fear. The financial advisors available through Bellco Credit Union can help you form a plan to get on track. Start by using this retirement-savings calculator to get a rough idea of what you’ll need to set aside, and then reach out to Bellco to speak with a professional for further help. Remember, retirement is supposed to be fun-the best way to make it so is to start planning now.
The calculator provided on this page is provided for general and educational purposes only. It is not intended to provide legal, tax, retirement or investment advice. The accuracy of this online tool and its applicability to the information provided is an estimate and is not guaranteed.