Retirement… what a weird concept, right?
You worked your whole life…so that you can kick back and enjoy those ‘golden years.' You have a list of ALL of the things you want to do. You want to buy an RV and travel. See the grandkids more often. Work in the garden. Sleep in. NEVER get on a plane again. Take up a new hobby or find time to do the hobbies that you love. ALL THE THINGS.
But what about the money part of the equation? Did you save enough money for your retirement?
Unfortunately most people underestimate what they really need to live on when they are no longer working. Especially women. Women live longer than men…and sometimes the money runs out and they are stuck living below the poverty level.
Don't let that happen to you!
Depending on how old you are when reading this will depend on what you need to do to save.
Compounding interest is a wonderful thing. If, at age 23, you save $5,000, at an average rate of 7% (stock market average over 100 years is 10%), you will have at age 60…$3.5mm. That is millions!
If you start at age 35, and save $5,000 a year, at the average rate of 7%, you will have $1.5mm. The difference is $2mm.
Something to think about, right?
All that to say… saving for retirement is HUGE.
Start now…regardless of your age.
This is a loaded question….because there are SO many factors involved in the answer.
The general rule of thumb is to save 15% of your GROSS (before tax) income. This includes your IRA's, 401K's, and other employer savings plans. If you make $50,000 a year, you need to save $7500. If you make $200,000 a year, you need to save $30,000.
A few things to be done first:
Back when I was in my late 40's I was reading a book about finances. I think it was Dave Ramsey's ‘Total Money Makeover.' I remember sitting on the sofa and crying. I did NOT want to live in government funded housing and be a greeter at a discount store. (NOT that there's anything wrong with that…it is just what I did not want to have to do).
We lived in a nice house. Had 2 cars. My husband made a good income. But, we had NO savings. None. Like in NONE. Not even retirement.
When my husband came home I told him that we were going to make some drastic spending changes so that we had savings…and we did.
I cut back on everything. Sold what we no longer used or needed. Paid cash for everything. Shopped discounts….until I stopped shopping altogether. Maxed out our 401K. Why?
I knew we did not have many years left to save. We were 20 years too late when it came to all of that compounding interest. But we could save something.
I knew we might have to sell our house and get a smaller, less expensive one. And that was ok with me. I just wanted to know that we were not eating rice and beans for every meal. And, I did not want to be a burden to my kids.
Once you know the answers to the above questions you will have a handle on what you need to do. And then count backwards. Meaning…
You have 25 years until you retire. Figure out:
You receive $2500 a month in NET Social Security income. Your expenses are $3500 a month.
You are short $1000 a month.
$1000 x 12 = $12,000 (yearly deficit)
$12,000 x 16 (average age is 81 and you are 65 when you retire – so 16 years) = $192,000 SHORT.
At age 40…retire at age 65. You have 25 years to save. Assuming NO interest. You need to save $7680 a year in order to cover your deficit from above.
And, if your deficit is larger…you need to save more money every year.
If you take that same $7600 and invest it. Average 7%. You will have over $500,000!
Here is the Positively Jane Retirement Calculator. Plug in numbers…see where they take you.
BTW – NONE of the above takes inflation into consideration (3% average).
Don't wait! Once you wrap your head around the fact that you WILL get older (hopefully). And that it is up to YOU to take care of yourself when you retire. It gets a tad easier to cut back now so that you have something when you are older.
My mom had a stroke at age 87. She had money in the bank…so we are able to pay for her caregivers with that money and she lives at home. Otherwise she would be living in a state funded nursing home…with no visitation due to Covid.
As with most things…it comes down to choices. It is ALL up to you.
And, if you are just sick and tired of money being the biggest challenge in your life let me help you fix it all. You can find out more inside Financial Independence Society.