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Saving for retirement is attracting a lot of attention in the world of personal finance, and rightly so. Consider this fact: your retirement could easily last 30 years – for a healthy couple aged 65, there is a 48% chance that a spouse will live up to age 90 and a 21% chance to reach 95 years old.
It's a long time to plan, and you will have to save an important nest egg because social security will not be enough to support your lifestyle. But how much is enough? If you are currently investing for your seniors, are you about to reach your goal? J.P. Morgan's recent Retirement Guide offers some useful benchmarks for getting familiar.
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Checkpoints for retirement savings
Whatever path we take in life, it's a good idea to take a periodic break, check our progress and make sure we're on the right track – and if not, determine what adjustments are needed. J.P. Morgan's Retirement Guide contains a convenient chart that shows how much money people would have had to save at different ages, depending on their current income.
| Current age | $ 60,000 | $ 80,000 | $ 100,000 | $ 125,000 | $ 150,000 |
|---|---|---|---|---|---|
| 30 | 9 | 1.3 | .6 | 8 | 1.0 |
| 40 | 1.9 | 2.5 | 2.1 | 2.3 | 2.7 |
| 50 | 3.4 | 4.3 | 4.2 | 4.6 | 5.1 |
| 60 | 5.6 | 6.8 | 7.3 | 7.9 | 8.7 |
Data Source: J.P. Morgan Asset Management
For example, a 40-year-old with a family income of $ 60,000 should have saved 1.9 times his annual salary for retirement, or $ 114,000. This figure assumes that the person will save 5% of his income, will get a 6% investment return rate before retirement, a 5% rate of return at retirement and that the rate of Inflation will be 2% annualized.
Interestingly enough, a 40-year-old man earning $ 150,000 should save 2.7 times his income, or $ 405,000. The higher savings rate is linked to the annual saving rate. The checkpoint assumes that those earning more than $ 100,000 a year save 10% of their income, compared to the savings rate of 5% for those who earn less.
One of the weaknesses of the study is that it does not address the net worth of the home or how the money you invest in your house is counted in your savings count. This is unfortunate because a home is usually the most important asset of a middle income family. Just be aware that if you are planning to sell your house or reduce your workforce and move the profits to retirement, this money must be recorded in your savings checkpoint.
Overall, the graph provides a reasonable estimate of what you should have recorded at different points in your life. The average growth rates of 6% and 5% are quite reasonable, and an annualized inflation rate of 2% should be acceptable at the moment, but if inflation increases, or if the returns to long-term market decelerate relative to their historical rates, the chart will prove to have been too conservative.
It is interesting to note how many multiples are relatively low for those who are in the early stages of their careers. While a 60-year-old man earning $ 100,000 should have 7.3 times his income set aside, a 30-year-old man with the same income needs only 0.6 times his income. This reflects the power of compound growth on investment returns over long periods. People who are nearing retirement or who have staggered their savings should take this into account.
Bridging the gap
If your savings do not match what the chart says, there are several steps you can take to start bridging the gap.
First, try to increase your savings rate by increasing the share of your paycheck routed directly into your 401 (k) or IRA. Start with small changes and leave from there. I'm willing to bet that your immediate lifestyle will not change much by reserving one or two extra percentage points for each salary. If you have not recently reviewed your monthly cash flow, try using a budget calculator for a while to help you determine where your money is spent and to see how far there might be from financial problems in your finances. savings.
Second, consider running a parallel campaign, as 37% of Americans now have, according to a 2018 Bankrate study. Additional income that you can spend on your retirement accounts will help you grow your nest egg. an income you are not used to spending on something else. Pension plan options are also available for self-employed individuals.
Finally, let's consider How you save and evaluate your investment strategy with respect to taxes. All previous recommendations are focused on investing in retirement accounts for one reason: the tax deferral.
You lose if you use a regular brokerage account, purchase deposit certificates (CDs), or use other investment vehicles taxed each year, before maximizing your ability to contribute to tax-efficient accounts, such as an IRA or another. a 401 (k).
Give priority to where you put your hard earned money.
If you have not set up an emergency fund entirely separate from your retirement savings, give it priority until it is strong enough to allow you to cross. difficult times – at least a few thousand dollars. If debt lowers your budget, make reducing your credit card and student loans an immediate goal.
But do not stop saving for retirement while you work in these areas – and certainly do not miss any of your company's corresponding offers for 401 contributions (k): you must always contribute at least enough to get the full employer. corresponds to your 401 (k). Learn about the Roth IRAs and the Roth 401s, which can help you invest tax efficiently for your retirement.
Rome is not built in a day and your retirement nest egg will not be built either. However, by following the wise advice of starting early, meeting your savings goals throughout your journey and being fiscally beneficial, you can build a portfolio that will give you the retirement you are aiming for.
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