Retirement Income Planning 101: How Much Should You Set Aside?

You might be thinking about the proper ways to save for retirement. According to the Center for Retirement Research at Boston College, some retirees may need to save more money to maintain their current standard of living. Since people have diverse priorities in retirement, there is no one-size-fits-all approach to financial preparation. There are several variables to consider when estimating how much you’ll need in retirement. Read on for some helpful pointers about how much money you should put aside.  

How Much Do You Need To Save? 

Identifying how much money you’ll need to save when retirement planning is vital. It will rely on the amount of your annual income and at what age you wish to retire. A fixed rule doesn’t apply in this case, but the rule of thumb is to save USD$1 million- or 12-years’ worth of annual income for retirement. 

Some experts suggest resisting the temptation to spend more than 4% of one’s retirement savings each year. There are also recommendations for saving 10% to 15% of your salary. However, to know how much you should set aside, there are variables to consider depending on your situation and status.  

Plan Retirement By Stages 

Planning for your retirement can be daunting. Also, the younger you are, the easier it is to put it out of your mind because you may be preoccupied with other matters. You may also be paying off college debts, aside from your usual expenses. But you’ll soon discover that starting early can help you save with greater intention, as you can tailor your efforts to your existing circumstances. You can track your progress by setting savings benchmarks depending on your current age. 

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For instance, at age 25, you began saving six percent of your income. You can boost it by one percent per year as you age. While 15% is a reasonable savings rate, those who earn more should try to save more than 15%. 

Factors To Consider In Retirement Planning 

Planning for your retirement doesn’t have to be a tedious process. Here are some factors to consider in helping you make informed decisions regarding retirement planning.  

  • Understand Your Timeline 

Setting the foundation of your strategy for retirement planning will rely on your current and preferred retirement age. The more years you have until your retirement, the more your portfolio can withstand certain investment risks. You can make riskier choices, such as investing in stocks if you have more than 30 years to wait until your retirement age. Stock trading has a degree of volatility but has a history of outperforming securities like bonds for decades. Remember that inflation can affect money’s value; a three percent increase can lower your savings value for the next 24 years.  

On the other hand, the older generation should focus on making an income and saving capital by investing in low-risk securities. The allocation of the majority of capital on low-risk investments can still provide you with an income to live on without the possibility of losing significant money. At the same time, inflation will have less impact on your investment.  

  • Plan Your Retirement Plan Inclusions 

Saving for your retirement allows you to decide where to put your money. Several options are available to build a more comprehensive retirement plan. You’d want to create a strategy wherein you only pay a minimum amount of taxes while maximizing gains. That said, here are some potential investment options you can choose from: 

  • Social Security 
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Having a nest egg to supplement your Social Security benefits is a great way to prepare for retirement. In the United States, these benefits are paid out to a large population of retirees monthly. Typically, if you’re disabled and unable to work, have trouble making ends meet, or have lost a spouse, you may be eligible for these benefits.  

  • Estate Planning 

Deciding which asset to leave your heirs can become a part of retirement planning. It helps to plan how to reduce the tax implications on your property for your beneficiaries.  

  • Life Insurance 

Adding contributions to your life insurance can also serve as a supplement for retirement savings. It helps you avoid deducting a chunk of your retirement savings to use for emergencies. A life insurance policy could provide additional income when you retire. It’s best to reach out to your financial advisor for guidance on how to best use life insurance in your retirement plan.  

The previously mentioned strategies are just a handful of many possible approaches to calculating a sufficient retirement fund. You can assess your current circumstances and make retirement preparations based on your specific requirements and preferences. 

In Conclusion 

The earlier you start saving for retirement, the more money you can accumulate. Since everyone’s circumstances and requirements are unique, there is no hard and fast rule for how much you should put away. To choose the appropriate retirement plan for your age and income level, you can consult a financial advisor.   

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