As millions of aging baby boomers start contemplating how they are going to survive when they’re no longer working, retirement planning has hit an all time high. Whether you’re just starting out in the workforce, or you’re staring 62 in the face and wondering where the money is going to come from, it is never too late to start planning for your retirement.
There are many ways that you can start putting money aside to help you in your later years. First, you’re going to need to figure out how much money you need every single year to survive. Take 10% of that and add it on for emergencies. You’ll need to extrapolate a bit when it comes to how long you plan to live, but most people shoot for at least 30 years of retirement money. So, take that amount per year and multiply it by 30. This is the amount that you’re going to have to put away.
Pretty frightening isn’t it? Now, take that figure and divide it by how many years you plan to continue working. This will give you an idea of how much money you need to start putting aside every year. Subtract any savings or 401K plans that you have and you’ll have the bottom line. As an example, to illustrate this process, let’s say that you need at least $45k a year to pay all of your bills and live comfortably. You’re currently 35 years old and you plan to work until you are 65. This means you’ve got 30 years to save money.
To be on the safe side, we’re going to put away enough to last 30 years. Even if you don’t live that long, you’ll have plenty put aside for managed care or other health expenses that can crop up. In total, you’re going to need to put aside $1,350,000. Add in that 10% cushion and you’re at just under $1.5 million. Ouch! You’ve got thirty more years to save, so you’re going to have to put aside $50,000 every single year to meet your goal.
(Editor’s note added after publication: As pointed out in a comment below, I left out the power of compounding interest… but I also left out taxes and inflation… If you think you could live on 45k a year now you will need to adjust for inflation as well… Personally I think I will have a hard time living on only 45K per year. I don’t think I was misleading, but perhaps I was oversimplifying.)
Unless you make an incredible amount of money, chances are you’re not going to be able to put aside this much money. Even the best 401K’s rarely perform that well. So, in order to make sure that a soup kitchen isn’t in your future, you’re going to need to look into some investments and alternative streams of income. If you don’t have a lot of free income as it is, debt leveraging may be in order.
If you’re not familiar with this term, it basically means going into debt in order to take advantage of opportunities that will create new streams of income. When managed wisely, this is a very easy way to put aside more money. The key is finding the best opportunities or stocks and being cautious at first. With proper management, debt leveraging is in an incredibly powerful tool that can be used to secure your future.
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6 comments ↓
People are simply not saving enough money for retirement these days. If they knew how long they would live they could plan better. But now-a-days people are living longer than expected and not saving extra funds to cover this.
I got posted why $1 million in retirement may not be enough.
Saving 50K for 30 years to save 1.5mil is a bit misleading. Thats only if you plan on putting your money into a box under your bed gaining 0% interest. Conservatively, if you can invest in a retirement plan and earn 5-7%, agressively, 8-11% if youre lucky. The compound interest earnings will significantly cut down the amount of money you need to save every year.
Example: http://moneyning.com/calculators/compound-interest-calculator/
Putting in 1000 a month (12K a year) over 30 years earning 8%, will yield 1.49mil at the end of 30 years.
12k is a lot less than 50k, and much more realistic.
Of course, if you had 50k a year for 30 years to invest and earned the same 8%, youd end up with over 6 million dollars.
“The most powerful force in the universe is compound interest”. Albert Einstein
Yes indeed a bit misleading, but I also left out taxes and inflation… I meant to say that I think I would need 1.5 million in today’s dollars, which is a significant amount more than 1.5 million at retirement.
I don’t think I was misleading, but I agree I was oversimplifying the issue.
[...] if you don’t have a savings account, now is the time to start putting money aside. It may be a little tough, but you need to have some security and a cushion to fall back on. Even a [...]
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