How Much Do I Need to Retire?
In this article I am going to answer this question: How much do I need to retire?
Tip: Pin the image above so that you can easily refer to this article about how much do I need to retire later.
Different Views on the Question of How Much Do I Need to Retire
Financial experts vary a little on how much they recommend individuals save toward retirement, but most of them recommend saving either 10 or 15 percent (or somewhere between the two, such as 12 percent—roughly one hour’s worth of pay per day) of your income for retirement.
So if you make $40,000 per year, or about $3,333 per month, you should save between $333 and $500 per month.
My personal recommendation is that, as soon as you can, you should start saving 15 percent toward retirement to help ensure that you retire with dignity and in comfort. Because of the wonderful power of compound interest, the money you save now is the most powerful! So let’s say you reduce your spending in various areas so that you are able to invest 15 percent of your gross income in good mutual funds that earn you a realistic 11 percent average annual rate of return, and you do that (never contributing any more than that, even, when you get raises) for your 35-year career.
By the time you retire, you would have $2,274,985 in your retirement account. That’s pretty impressive in and of itself! And if you have invested all of that money in a Roth 401(k) or IRA, then it will all be tax free in retirement. Woo hoo!
But before you start saving for retirement, I recommend that you pay off all of your nonmortgage debt and save up a three- to six-month emergency fund. This will ensure you have a firm financial foundation to begin building wealth (which is what you’re doing when you start investing for retirement—yay!).
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A Great, Free Investment App
Once you begin investing for retirement, you may want to look into a great free app called Personal Capital in order to track your progress toward reaching your retirement and other financial goals. With Personal Capital, you can see not only all of your bank checking and savings accounts and even your credit cards and other finance accounts, but you can also link your retirement and regular nonretirement brokerage accounts.
This allows you to have a complete, overall picture of your current financial situation. And you can also view your account history to see how your accounts and overall portfolio have done over time. It’s a very helpful tool that I use often! Sign up for your free Personal Capital account here.
What Should I Invest in for Retirement?
There are many ways that you can invest, such as buying stocks, buying real estate, and buying a business, but by far the easiest and least risky way to invest of these options is to invest in mutual funds.
A mutual fund is a collection of assets like cash, money market accounts, stocks, and bonds that is professionally managed as a portfolio of investments. And mutual funds are made up of shares that represent owning a piece of a business. Each piece is a known as a stock. By owning a stock, you own a piece of a company such as a technology company, automobile company, or food company. For example, you can buy a share of a mutual fund that invests in Coca-Cola and Walmart and Ford.
When comparing cash, money market accounts (a high-yield, high-minimum deposit savings account), bonds (where a company or municipality owes you money—you’re buying their debt and they pay you back with interest), and stocks, long-term, the asset that will make the most money are stocks because they have more inherent risk than the other three options and therefore higher potential reward.
However, you don’t need to worry that mutual funds are overly risky—if they were, I definitely wouldn’t invest in them, and I wouldn’t recommend that you do, either! By investing in mutual funds, you actually reduce your amount of risk because you are investing in a wide variety of different companies, rather than buying stocks from a single company (that could go bankrupt, for example).
What to Invest In
I know that when I was first trying to figure out how to start investing for retirement I really wished there was someone who had my best interests at heart (and not their commission rate) who would just hold my hand and show me the best funds to invest in and why. And that’s why I will email you and share with you exactly how we choose the mutual funds we invest in (for free—no strings attached) by entering your email address below.
Should I Invest in a Traditional or a Roth 401(k) or IRA?
For many people, a Roth 401(k), if available, or a Roth IRA is a better option than a traditional 401(k) or IRA because they will have a larger income in retirement than in their working years.
And that’s what most people should strive for—to accumulate a substantial amount of wealth in order to retire with dignity and provide for themselves comfortably during retirement. And it’s a worthwhile goal to aim for because having a substantial nest egg gives you more options—more options to travel, more options to care for elderly parents or children, more options to give significant amounts to worthy causes.
A Roth 401(k) or IRA is also often a better option than their traditional counterparts for many people who have significant tax deductions now for things such as child tax credits, charitable giving deductions, or mortgage interest deductions, for example. This is because those tax-deductible items help make their taxable income lower now than it likely will be in retirement.
Learn more about investing for retirement to help you unlock the powerful potential of your future.
By saving at least 10 percent of your income, and better yet 15 percent, you help to ensure that you will be able to retire in comfort, where you can provide for your needs as well as many of your wants in your post-working years. By saving more money as soon as you can, you will have much more (because of the awesome power of compound interest) money available to travel, take care of your medical needs, spoil grandchildren and help pay for their college educations, give to causes you care deeply about, and more.
Invitation to Share
Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!
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