How much should you be saving for retirement?
Depends who you ask I suppose. Suze Orman will tell you 10 to 15%, Blogger A will say 20% and Blogger B will say 25%.
Every “financial expert” has some idea, usually a fixed percentage of your income, of how much YOU should be saving for retirement. Fact of the matter is – only YOU can answer how much YOU should be saving for retirement.
I don’t blame the financial experts. They are just trying to keep things simple and provide a general benchmark.
However, there is no such thing as a general benchmark in my opinion. Saving for retirement can be rocket science because there are several variables involved in determining what that magic number should be.
First, how much one should put away is highly dictated by their age. It is no surprise that the government allows “catch up” contributions to retirement plans for people over a certain age.
Second, one’s planned retirement age and life expectancy play a huge role in determining how much they should save for retirement. Health has a lot to do with this variable, which is very much distinct for each of us.
Third, how much do you foresee needing for retirement? What kind of lifestyle would you like to sport in your “golden years”? Your desired standard of living can affect the answer as well.
Do you know if you are going to inherit wealth before you retire? I am not advocating relying on this method to fund your retirement, but if the probability is high and known, one should at least consider the sum when thinking about retirement.
Similarly, how much money do you already have stashed away? Clearly, the fourth variable is the amount of money you already have.
Fifth, what vehicles or instruments are you saving your money in? Is your money sitting in a cash account, a fixed deposit account, a bond or stock portfolio? Is it in physical real estate? Is it invested in a start-up company?
What is the projected growth rate of your investments? How your investment returns fare over the long term often impact the adjustments one makes to how much they put away for retirement over time.
Sixth, there may be one off events in life that bring about adjustments to your retirement plan. An inheritance is just one example. Another can be a potential sale of a business or real estate holdings, resulting in significant capital gains.
Because each of the variables is highly distinct for each one of us, the answer to how much you should save for retirement is a number that only you are likely to best estimate.
That said, I completely appreciate the intent of all the financial experts out there. After all, they just want to make sure we all end up alright in the end don’t they?
So, what is YOUR take on how much you should save for retirement? Should the Social Security promise be factored into this discussion? Is saving for retirement as simple of a concept as many “financial experts” make it sound?