Monday, August 2, 2010

How Much Do You Need To Save For Retirement?

This is a very perplexing question. Unfortunately, there isn’t an easy answer, or even a very accurate calculation or rule of thumb to relay on. Perhaps the best advice is to save as much as you can when you can. Our lives tend to be very volatile. There are different phases in life when you have a greater ability to save, so you need to be flexible. When people get married and they have a double income with no children, their ability to save increases. Once you start having children, your income may shrink, perhaps there is only one spouse working, and expenses will increase, so your ability to save is reduced. As soon as the children finish school, your ability to save should increase.

Retirement means different things to different people. What does retirement mean to you? If you are thinking vacations and spoiling your grandchildren, you are going to need to save more than someone who plans to continue working, at least part time, well past age 65. You really need to sit down and think about your goals. When do you want to retire and what do you want your retirement to look like? If you get to your target age and you feel you don’t have enough money, you will need to make adjustments by working a bit longer or dialing back you lifestyle a bit. In other words, you will need to be flexible.

Although it is uncertain as to how much you need in retirement or how much is enough, you should start with a goal in mind. The different phases of your life will dictate how much you can save, but you do need to have that goal.

If you find you have enough at an earlier age, great. If you get to retirement and realize you over saved, if there is such a thing, that would not be the worst of sins. Your heirs will be very happy.

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
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