Ahh, retirement… that magical time in our lives when you never have to work again. WHERE DO I SIGN UP?! 

Okay so retirement sounds great and all but I have to break it to you: retirement isn’t going to magically fund itself. One thing people often forget is that even though you stop working in retirement, you don’t stop paying bills. You still have to pay rent, your mortgage, utilities, groceries, etc. 

Welp, there goes that magical place! The good news is that you can retire someday and travel the world and never have to worry about working again – it’s just going to take a little bit of planning. The sooner you start, the better! Even if retirement is still 30-40 years away for you, starting now will make a huge difference down the line. 

The million-dollar question around saving and planning for retirement is how much should you be saving for retirement? There’s no right or wrong answer to this question and the answer will be very specific to you and your situation. Here are some things to consider when deciding how much you should be saving for retirement. 

  • Find out how much you will need for retirement. There are a lot of online tools that can help you come up with this. I found one on NerdWallet.com that I found easy to use and you can go to it by clicking here. When you retire, you will (hopefully) have some lump sum of money that you’ve been saving and investing for 30+ years and you want to know how much you will need that lump sum to be to last you for the rest of your life.

UHH, no pressure right?! Try using NerdWallet’s retirement calculator to get an idea of what your end goal should look like. All you’ll need to enter is your age, income and how much you have saved for retirement so far. Keep in mind this calculator is just a tool to give you an idea and it should not be taken as actionable advice. 

  • Determine what you can afford to save now. Once you know how much you will need to retire comfortably, you can have a better idea of how much you should be saving NOW for retirement. Many professionals believe people should be saving somewhere between 10% -15% of their annual income into their retirement accounts to be prepared for retirement. 

Again, this isn’t a hard and fast rule and can depend on each person however you should be saving as much as you possibly can for retirement. This means if you’re younger and still living at home without a lot of major financial responsibilities, then try to be a little more aggressive with your savings rate. I aim to save 15% of my annual income and I plan to increase this as my income continues to grow and as I can afford it. 

  • Consider saving at least your company’s match as applicable. If you can’t afford to save 15% of your income now and/or have other current financial goals like paying off high-interest debt, it’s okay! Saving a little bit is better than saving nothing. You can still start saving and planning for retirement while still paying off your debt and while still funding other goals. If you’re saving for retirement through an employer’s retirement plan (i.e. a 401k) try to at the very least save whatever your company’s match is. 

For example, if your company matches your dollar for dollar up to 5% of your annual income, then try to save at least 5%. If you don’t save at least your company’s match, you’re leaving money on the table and you don’t want to do that!

  • Keep the IRS contribution limits in mind. There are annual contribution limits set by the IRS for retirement accounts. Believe it or not, you can get in trouble for breaking these rules and saving too much in your retirement accounts. The annual limits are pretty big and may not be a problem for a long time, especially while you’re early in your career but you should still be aware that they exist. You can read more about these limits directly from the IRS website here.
  • Remember to revisit your retirement savings plan often. Things will change many times throughout your life and they may affect your financial picture. Maybe you get a nice raise at work and all of a sudden you can afford to increase your retirement savings rate. On the other hand, maybe you start a family and temporarily become a little more tight on cash and need to decrease your savings rate for a little. 

There will be a lot of things that happen and you should remember to always revisit your retirement plan to make sure you are saving an appropriate amount based on your current situation. Just remember it’s better to take corrective action as things come up than wait until the end to plan for retirement.

Nothing on this blog should be considered personal actionable advice, research, or an invitation to buy or sell any securities. Consider all risks before investing, including the loss of your hard-earned money. Vee is an Investment Advisor for Warren Street Wealth Advisors, this blog reflects her personal views and not that of Warren Street.