The general rule of thumb is 12-15% of your annual income, most Americans do not save enough for retirement. In 2019, the average retirement savings account for American households was $65,000 according to a Motely Fool survey. Your savings rate should be individualized based on your age, income, debt, and anticipated expenses at and through retirement. The best way to determine how much of your income you should be saving is to speak with a Prevail advisor who can help you develop a strategy.
What should I really be Investing in?
This is a loaded question but also an important one. It’s best to make this decision with the help of an investment advisor representative.
An advisor may ask:
- When do you want to retire?
- What does a successful retirement look like for you?
- How much income do you need or want in retirement?
What Does Your Retirement Plan Look Like?
If you are 45 years old and want to retire at 65, as a general rule of thumb, you need to save between 12% and 15% of your annual income. But this also depends on how you are invested, how much risk you take, and what growth you can count on during your accumulation phase.
Most people need to replace approximately 80% – 100% of their working income to live a similar lifestyle during retirement. Saving 12% to 15% of your annual income should get you there, particularly if you have an employer that matches your 401(k) contribution or you have a profit-sharing contribution made annually on your behalf. It’s essential to run and re-run those numbers regularly to see where you are, depending on the variables involved. That way, you can adjust your strategy and ensure a comfortable retirement lifestyle.
Do You Have an Emergency Fund?
Most people are taught to save and have access to three to six months worth of living expenses in an emergency fund. This is the starting point that most people are trying to achieve. You can begin to save and invest in other areas when you get beyond that.
There isn’t a specific target age for people to start saving. Instead, it is a habit that you should develop as early as possible. Whether you are a 16-year-old mowing lawns or a 40-year-old with a steady income, saving is a habit you can cultivate. The more you save, the better prepared you are for life. Unfortunately, life happens, and those unexpected expenses can create debt and anxiety and derail your wealth-generation strategies without the proper preparation. Having a buffer for unforeseen circumstances will protect your retirement investment and offer you peace of mind.
Let Us Help!
It can be complicated to understand how much you should be saving and how to save it. That is why we create a team around our clients that helps approach saving strategies from many angles.
Chat with one of our investment advisor representatives to dive into the strategies that can get you on the right track.