Clueless on what to save for retirement? You're in good company – Motley's Fool

We are constantly reminded of the importance of saving for retirement, especially since social security alone will not be enough to pay the bills. The problem, however, is how much money you will need to accumulate. After all, no magic number guarantees the financial security of retirement and, even though it goes without saying that you'd better save $ 3 million than $ 300,000, there is clearly a considerable gap between both.

In fact, 60% of Americans say they have no idea how much to save for retirement, according to data from TD Ameritrade. If you are part of it, here are some general guidelines to follow.

1. Suppose you will need about 80% of your previous income to live comfortably

Many people think that their expenses will magically decline in retirement, but this is usually not the case. When you consider the different things you are spending money on at the moment, there is no reason to think that you will pay less for the next 5, 10 or 20 years. (On the contrary, they will probably cost more because of inflation.) That's why, as a rule, it makes sense to provide about 80% of your old income to pay the bills without stress retired. This means that if you earn $ 60,000 at the end of your career, you will need about $ 48,000 a year once you have stopped working.

Of course, all this does not necessarily have to come from savings. Social security, for example, pays the average beneficiary about $ 17,000 a year at the present time. Therefore, if you are entitled to something similar, you have to make up a deficit of $ 31,000 a year.

2. Understand your life expectancy

Americans are living longer these days, and while this is a good thing in theory, it also means that workers need to increase their savings to make sure they last long enough. While the average US retirement is currently 18 years old, if your health is good and you are retiring in your 60s, nothing says that you will not think of a retirement between 25 and 30 years old at least. And planning for this eventuality is a better bet than selling your own life expectancy.

3. Aiming for at least 10% of your income on an annual basis

Until now, we have discussed that your expenses will probably not decrease much in retirement and that you could end up living longer than expected. So where does that leave you from the savings point of view? It's simple: you should aim to raise money from an early age and allocate as much of your pay to your nest egg as you can afford to separate.

If you start saving from the age of 20, you can probably get away with 10% of your income. This is really the minimum, however, and if you start a little later in life, you will want to aim to set aside 15 to 20% of your income.

Let's go back to our example of a $ 60,000 salary. For the sake of simplicity, suppose you earn the same amount each year throughout your career, even though we know that wages tend to fluctuate (rise) over time. Assuming you set aside 10% of this $ 60,000 each year, or $ 500 a month, here is the kind of nest egg you could build, depending on when you start saving:

TABLE AND CALCULATIONS BY THE AUTHOR.

So what do these numbers mean? As a general rule, you can expect to withdraw about 4% of the value of your nest egg every year at retirement without having to worry about running out of money over a 30 year period. Therefore, if you retired with $ 1.2 million, this would translate into $ 48,000 a year, which would provide a very comfortable retirement based on our example. If you ended up with $ 829,000, you would have $ 33,000 in income a year, which also fills the gap very well in our example above.

Look what's going on, though, as we progress through this table. A final balance of $ 567,000 seems impressive, but it represents only $ 22,700 a year. And if you end up with $ 379,000 or $ 246,000, you will only have $ 15,000 or $ 9,800 a year, respectively.

Therefore, as you accumulate wealth in your nest egg, perform this 4% calculation to determine the annual income actually needed. This will help you determine if you are about to retire or need to start saving more.

Defining precisely your retirement savings goal is easier said than done. But if you follow the guidelines above, you will put yourself in a better position to save appropriately and retire comfortably.