When it comes to saving for retirement, many people have no idea how much money they should put aside to retire the way they want to. An ideal retirement figure depends on a wide range of factors, from desired retirement age to percentage of income saved every year. Here are four common factors used to calculate retirement goals.
1. Starting age – As any retirement advisor will tell you, you should start saving as early as possible. By putting away part of your income in your early 20s, you can greatly reduce financial strain as you approach retirement and even generate a surplus.
2. Deferral rate – Although it might be difficult to commit 10 to 15 percent of your monthly paycheck to retirement savings, you should attempt to keep your deferral rate in this range. After a while, you will grow accustomed to the deferral and adjust your spending habits accordingly.
3. Rate of return – Because it is impossible to predict the rate of return on your retirement savings, you should always use a conservative estimate when factoring in rate of return to your retirement goals. Better safe than sorry, as the saying goes.
4. Salary growth – If you base your retirement goal on a multiple of your salary at retirement, you will need to take into account salary growth when computing your final figure. The faster your salary grows, the more quickly your retirement goal outpaces the money you can save every month. If you make an effort to keep your marginal spending increases well below your marginal salary increases, you will be able to boost your savings considerably.
At the end of the day, saving early and often will maximize your chances of achieving your retirement goal. Stick to your plan once you’ve made it and you should have no problems retiring how and when you want.