The cruel thing about saving for retirement is that you have to do it during one of the more expensive times of your life — when you’re raising kids. Even if you’re lucky enough to be a member of a dwindling class in America, that is, someone who is guaranteed a pension in her golden years, you should still be socking money away as much as you can afford. After all, those guaranteed pensions? Not so guaranteed.
Yes, it’s easier to stick your head in the sandbox than to sit down and come up with a retirement savings plan. But here’s a first and easy step: setting goals. (The hard part is working toward those goals.)
The real mystery of retirement savings is how to know if you’ll have enough. But the following rules of thumb, according to Fidelity Investments, should at least get you thinking about what to do.
TIME magazine published the rules, which break things down into retirement savings goals at 35, 45 and 55 years old. If met, you should be in decent shape for when you hit 67 years old, retirement age. (Or perhaps you’ll want to decide now to work the rest of your life.)
- At age 35, you should have saved an amount equal to your annual salary.
- At age 45, you should have saved three times your annual salary.
- At 55, you should have five times your salary.
- When you retire at age 67, you should have eight times your annual pay.
Other investment firms suggest that you have 11 times your annual pay by 67, but that might be too depressing if you’re just now coming to reality with regard to retirement savings.
To meet these goals, you’ll likely need to do more than just stuff money in a mattress — or a savings account, which, except for the security, is kind of the same thing. If those numbers depress you, be assured that most people don’t get serious about retirement savings until they’re in their 40s or 50s. The experts in the TIME piece recommend you max out your 401(k) contributions at work — over time if you have to. Start with a 6% contribution and add one more percent each year until you get to 12%. Also, gobble up all the matching funds your employer might offer.
The experts also recommend that you earn 1.5% more each year above the inflation rate. Well, good luck with that since wages have been stagnate for a decade or so. Still, it’s a guideline.
What gets tricky for families with kids is the question of saving for college — should parents do it? If so, how much? What’s the priority — my kids or my retirement. Most financial experts say that retirement should be the priority, since kids can get scholarships, grants and loans to help get them through a bachelor’s degree. Of course, hearing the level of debt so many recent graduates are carrying, that can be tough advice to take.
Are you on track with your retirement savings?
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