I’ve written a lot about my path to retirement. The savings rates it took to retire at 51 and the choices we made.
I’ve also stressed that everyone’s retirement path is different. We each have to find the path that works for us.
I found a great resource that can help you figure out how much you need to save, what savings milestones you should have reached at certain ages, where your retirement income will come from and how to make your retirement savings last. Fidelity Investments released a series of articles that will help guide you on your path.
How much should you save for retirement? They say 15% of your annual income. This includes your contributions + any employer match you receive. This savings is for retirement only–any other savings goals would be in addition to this 15%.
Are you on track? I love this because I am often asked how much retirement savings folks should have. Fidelity figured out how many times your annual income should be saved based on age. Keep in mind this is a rough estimate–if you’re saving half of your income, this guideline results in more savings than you should need.
Where will your retirement income come from? This helps you understand what percentage of your income should be replaced by social security (for my readers in the U.S.). Warning–it’s less than you think! Your remaining needs will need to come from your savings.
Making your savings last. This helps you decide what percentage of your retirement savings you can safely withdraw each year. Their recommendation is 4% to 5% of your retirement savings in year 1 increased by inflation each year. They show the chance of having your money outlast your life. They note that early retirees need to reduce their rate of withdrawal so their money lasts as long as they do.
These fabulous resources are available to anyone–whether you have an account or not. Their recommendations seem right on target to me. They also have some calculators (widgets) that you can use to see where you stand. The entire series is worth a read.
If you’re not saving 15% of your income or you haven’t reached their # times salary goals above, don’t despair! I was behind the curve at 30 too. I was able to make it up by 35 and kick my savings into high gear in preparation for early retirement.
If a 15% savings rate seems unattainable, start making some progress, any progress, to get there. Increase your contributions by 1% each year or contribute 1/2 of any raise and 90% of any bonus to your retirement.
Look at what you are spending money on–focus on the biggies (housing and transportation), the monthly contracts (cell phones, internet, cable, gym) as well as the small, pesky expenses that add up (dining out, coffee). I’d bet you could squeeze out some savings to put towards your retirement. Need some inspiration? Check out this great video showing the benefits of saving for your future: PUGS!
You’re never too young to start–those early dollars are working for you the longest. It’s never too late to get on track–it was much easier to increase my savings rate as I got older and I was earning more.
My thanks to Jean Chatzky for telling me about these great resources from Fidelity. If you don’t listen to Jean’s podcast, Her Money, you should. Even if you are a Him.