How much should you save for retirement? Your golden years may seem far away, but a diligent retirement strategy can save you from facing unexpected financial challenges when you are ready to retire.
Saving for retirement can be challenging. Looking decades into the future and accounting for circumstances such as medical emergencies or major purchases can seem intimidating. However, understanding exactly how much you need to retire will help you create a detailed financial roadmap for your 60s, 70s, and beyond.
Start saving for retirement
1. Set a retirement goal and get started
A recent survey found that 55% of non-retirees currently have a retirement account, whereas 25% have nothing saved for retirement. Additionally, Americans in their 30s have an average of $38,400 saved for retirement, whereas those in their 20s have about $10,500 saved. If you happen to fall into either of these age groups and haven’t started thinking about retirement yet, there is no need to panic. It’s never too late to start planning for your financial future.
Exactly how much money should you have saved for retirement? The 80% rule states that you should live off about 80% of your pre-retirement income after you retire. That means that if your annual income was $100,000 a year before retiring, you should be living off of about $80,000 per year post-retirement.
A financial advisor at a bank or credit union like Texas Tech Credit Union can also help you determine how much money you should put aside each year to accrue a comfortable nest egg once you retire. Setting a clear-cut retirement goal will give you an idea of exactly how much money you should save each year.
2. Pay off your debt and stick to a budget
Too much debt can hurt your savings. Putting any additional income toward your credit card, personal, auto, or student loan debt helps you save as much as possible for retirement.
Creating a budget is another effective way to build a nest egg. Write down any current bills you have, such as student loan payments, insurance, groceries, utilities, credit card payments, or mortgage payments. Once you have created a list, identify areas in which you can reduce costs. Asking yourself the following questions may be helpful:
- Does your spending exceed how much you earn?
- Can you purchase a smaller vehicle that offers better gas mileage than the vehicle you currently drive?
- Can you consolidate outstanding credit card debt into a lower monthly payment with a reduced interest rate?
- Can you negotiate a lower interest rate on your student loan payments?
- Can you reduce the amount of money spent on gas by taking public transportation to work a few times a week?
- Can you eliminate additional expenses such as cable or video streaming services to save a few extra dollars each month?
- Can you switch to generic brand products as substitutes for certain foods or personal care items?
3. Contribute to your 401(k)
If you are eligible for your employer’s retirement plan, make sure to contribute the annual maximum amount that will be matched. Doing so will allow you to contribute pre-tax money from your paycheck, meaning you can put away more cash without seeing a major reduction in your take-home pay.
If you haven’t put any money toward your retirement account, it’s time to start saving now! Find out the maximum contribution your company will match and ensure you take advantage of that match. For example, some employers will match up to half of employee contributions up to 5% of their salary. That’s a big chunk of change, and it is technically free. Make sure you take advantage of it.
4. Make catch-up contributions if you’re over 50
Individuals who are at least 50 at the end of a specific calendar year can make annual catch-up contributions, meaning their contributions can exceed the annual 401(k) limit. The current catch-up amount is $6,500. That means that if you are 50 or older, you can contribute a total of $26,000 in 2021 or $27,000 in 2022.
5. Stash extra funds
There’s a reason why financial advisors tell clients to “pay themselves first.” Ensure your retirement contributions are automatically deducted from your paycheck each month so that your savings have the opportunity to grow. This will also prevent you from spending money that you should be saving.
Boost your retirement saving strategy
When it comes to proper retirement planning, consulting the right financial experts can help! Texas Tech Credit Union can put you on the right path to retire comfortably, from helping you understand how much you should be saving for retirement to implementing tax-saving strategies. Join TTCU today to get started!