According to this study done by Northwest Mutual, one in three Americans have less than $5000 saved for retirement and one in five have not started saving for retirement at all. This is a staggering number and should never be the norm. Have you ever wondered how much you need to save, or how to benchmark your savings? At Stewardship, we have some general rules for retirement saving and goals which translate to a healthy retirement projection.
At age 25 you are most likely in your first career. It’s a healthy practice to start contributing to your employer provided Roth 401k plan or your Roth IRA if your employer doesn’t offer one. Your employer’s plan has a target retirement date which is perfect if you are just starting off. This type of plan gives you a diversified portfolio which should provide the return you need over time. You should be saving at least 10% of your income. By age 30, a healthy retirement account will have around $50,000. By 40, you should have roughly $250,000 saved.
Don’t have that amount saved? Don’t worry! Let’s get together and figure out how to get you on track.
Now, you are earning more money in your career. You shouldn’t need to save more then 10% if you started saving early. At age 55, your retirement savings should be roughly from $1.2 million to $1.5 million. During this time, you should be in communication with your financial advisor or CPA to figure out if a traditional 401k or Roth 401k is the best option for you. Starting to diversify your investments from the target date fund in your plan can help reduce expenses and get you better diversification. You still want to stay with a mostly stock portfolio, but you can work with your financial advisor to determine what mix is best.
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You’ve reached the home stretch for contribution years. When you’re about five years from retirement, it will make sense to re-evaluate how your portfolio is invested. You can continue to save 10% of your income, but also evaluate how quickly you can have your house paid off. This will free up cash flow in an easy, effective way. At this point, your contributions should be going to your traditional 401k for the immediate tax break. If you have followed these steps, you should have approximately $3.5 million in your retirement accounts. This will give you the income you need to maintain your desired lifestyle and should allow for raises in income as the cost of living goes up. In your late 50’s, also be planning for things like long-term care expenses and healthcare costs. You are able to strategically reposition your portfolio to cover these expenses or buy a long-term care policy to protect your wealth from the unexpected. At this point, you can choose when you want to retire and not worry about having to work longer than needed.
These are the benchmarks we use for healthy retirement savings. We understand that every situation is different, so if you’re concerned after reading this, schedule some time with us and we can help get you ready for retirement.