5 Budgeting Tips People Saving for Retirement Need to Know

As you progress into your career, you may wonder: Am I ready to retire?

If your answer is “no,” it is high time to prepare for retirement. Reflecting on your financial goals and what you aspire to achieve after decades of work can help you secure a comfortable lifestyle once you retire. 

How Much You Should Save, According to Experts

To start drafting your retirement checklist, you must first identify how much you need to save. Here are some tips from financial experts to help you get started on your savings journey.

1. Save 15% of your income.

According to Fidelity, you should set aside at least 15% of your gross income each year to prepare for retirement, assuming you are saving from age 25 to 67. 

This strategy predicts that you will need 55% to 80% of your working income for your retirement fund, some of which would come from Social Security payments. Moreover, your savings target could even be lower if you have a pension or 401(k) plan.

2. Set aside 10% to 15%.

Finance journalist Paula Pant suggests identifying your objectives before you begin saving. Since your goal is to set up a retirement fund, you should aim to keep 10% to 15% of your income. If your employer matches your savings, you can subtract that amount from your target percentage.

Pant also suggests following the popular 50/30/20 rule, advising that 20% of your income should go towards your savings, with 30% for wants, and the remaining 50% for needs.

3. The 4% rule.

A good number to determine how much you need to save is 4% of your desired retirement income per year. For instance, if you want an annual income of $80,000 after you retire, you need to set aside a total of $2 million. 

However, note that this approach assumes you would live 30 years in retirement. It also assumes a 5% return on investment adjusted to inflation and after taxes, no other income streams, and a constant lifestyle throughout the years. These variables can be challenging to track, so practice retirement planning to improve your income, investment, and expense management.

4. Increase savings with age.

Only some people can start saving at an early age. However, no matter when you begin, it is critical to start saving as soon as possible.

Former financial advisor Erika Napoletano suggests increasing your savings according to your age. For instance, paying off mortgages and minimizing debts should be your priority in your 50s. You should have an updated emergency fund, maxed-out retirement contributions, and increasing savings at this age.

This strategy can be challenging, especially if you earn little. To meet the demands of this approach, consider investment options for retirement planning. You can set up a small business or invest in real estate to build your income stream.

5. The $1,000-a-month rule.

A simple guide you can follow is the $1,000-a-month rule, a strategy created by financial planner Wes Moss. It states that you will need to save at least $240,000 for every $1,000 retirement income you want to receive. Using 5% or $12,000 of your savings each year can give you $1,000 to spend every month. 

Your savings can increase with retirement payouts and other income streams. Here is the catch: if you want your fund to last longer, you should withdraw even less than 5% per year.

Living Your Best Retirement Life

Building a retirement fund will not always be perfect. It depends on your goals, working income, and age when you start saving. Whatever strategy you choose, you should start saving as soon as possible. 

Remember that your retirement can last for many years. So, take advantage of your time and opportunities now to build a fund that can make your golden years worthwhile.

This article was contributed by Darrell Armuth, financial advisor and founder of Sensible.

Sensible’s mission is to provide a better investment experience for today’s investors. We deliver really good investment advice to real people at a low cost, allowing you to earn more while paying less.

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