2. Calculate how much you should save each year.
Aiming for a multiple of your annual income is a simple way to calculate your savings goals. While the exact amount depends on your estimated retirement costs and the individual investments you’ve chosen for your retirement portfolio, these numbers might help you get a clearer picture of your situation.
According loyalty Investments, you must set aside at least 15% of your pre-tax income for retirement. Many other financial planners suggest saving at a similar rate for retirement, and findings from Boston College’s Center for Retirement Research support this.
On the other hand, preparing for retirement is not always as simple as setting aside 15% of your income. The 15% rule of thumb assumes various things, including that you start saving in the early years of your life. You will need to start saving at age 25 if you plan to retire at age 62, or at age 35 if you plan to retire at age 65.
It also implies that you will need an annual income of 55% to 80% of your pre-retirement salary to live a comfortable retirement. More or less may be needed depending on your spending habits and medical bills. For many people, however, 55% to 80% is a good approximation.
Finally, the 15% rule will not give you a retirement fund that will cover all of your expenses. Social Security, for example, will most likely provide part of your retirement income. Overall, the 15% projection should provide you with a steady retirement income that lasts into the early 90s, at about 45% of your pre-retirement salary.
Not everyone can start saving at age 25 or save 15% of their income continuously for retirement. To compensate for the lack of time and accumulation, you may need to work longer, eliminate more costs, or devote more of your income to retirement if you start saving later in life or saving a little less.
Fidelity offers simple retirement savings standards by age to help you measure your progress in retirement savings, no matter when you start saving or how much you can set aside.
|Age||Multiple of annual salary saved|