The question of how much to save for retirement is often hotly debated. And that is for good reason. It is largely because there is no one correct answer that can be applied to everyone. That is why instead of shooting for a particular number, future retirees should apply some specific principals to the situation. These principles, which are not all encompassing of how retirement should be planned for, are as follows:
- Track Spending
- Health Concerns
- The 4% Rule Of Thumb
Knowing where your money is going is crucial to deciding how much money is required for retirement. Creating a budget can be one of the most helpful tools in preparing for retirement. This way, individuals are able to see where every dollar is going out of each paycheck. Once fixed expenses are known, it is far easier to get to a target retirement savings number that will allow that type of lifestyle to continue.
Knowing a bit about family history can be very important in determining how much you need to save for retirement. If many diseases run in a family, a retiree is more likely to also have that disease and may need to save more to account for increased healthcare costs. Conversely, those who come from a family that has very few health problems may need to be less aggressive in this additional savings. Life expectancy is also important to consider. Those who expect to live longer will need more savings to fund a full retirement.
The 4% Rule Of Thumb
This rule of thumb deals with the withdrawal rate that you will use as to not run out of money too quickly in retirement. It states that retirees should withdrawal four percent of your retirement portfolio each year, adjusted for inflation, so that they will never run out of money. The balance will slowly fall, but it will outlive the retirement itself. To be able to employ the 4% rule, future retirees should aim to save 25 times what is expected of an annual retirement budget.
Retirement can be a scary time. There are always questions about whether or not it’s time to pull the cord. While these concerns can never fully be assuaged, there are many easy steps that can be taken to maximize the chances of a successful retirement.