How Much Should You Save for Retirement?

It is well known that Americans on the whole do not save enough money for retirement. Granted, it may be difficult to save money if you are facing a current financial hardship. But many people who are not going through a difficult time still find themselves unsure of just how much they should save. This article will offer some resources to help you get a better idea of exactly how much you should put away for retirement.

Use Formulas to Keep Thing Simple

Managing your finances can be quite complex, but it need not be. One of the best ways to make sure you are following sound financial principles is by adhering to quick and easy formulas offered by popular money gurus. Take, for example, the popular financial author and radio host, David Ramsey. He advocates taking 7 baby steps to financial security, and one of these steps involves putting away 15% of household income into retirement plans such as Roth IRAs. Elizabeth Warren, a former Harvard law professor and bankruptcy expert, writes in her book All You’re Worth that people should save 20% of after-tax disposable income. The exact percentage you should save will depend on your situation to some extent, but the general consensus among experts seems to be that you should save 15 – 20% of your income. By contrast, the majority of Americans save under 5% of their income as of 2012. It would therefore be wise for most people to start cutting their spending and taking proactive steps to save more money.

Use Online Calculators to Estimate Your Retirement Earnings

While putting aside a set percentage of your income may be the easiest concept to understand and follow, some people may want to play around with numbers and get a precise idea of what their retirement earnings will be. There are plenty of online calculators you can use to do just that, but Bankrate offers one of the best retirement calculators available, which allows you to see exactly how much your retirement income is likely to be. All you need to do is enter your age, the current balance in your retirement savings accounts, and how much you plan to save each year, going forward. The other fields can be left at their default values. The calculator will then show you how much monthly retirement income you can expect given the numbers you entered. Using this tool, you should be able to get a good idea of how much you need to be saving in order to maintain your current lifestyle.

Estimate Your Social Security Benefits

The Social Security Administration has an excellent website, so by all means you should take advantage of it to help plan your retirement. Among the most useful features of the site is the retirement calculator, which gives you the ability to see how much your benefits will be when you retire. More and more, it seems that Social Security is becoming less of a guaranteed thing. With that said, Social Security is something we all paid into and deserve to collect on, and in all probability, it will always remain in one form or another. If no reforms are made to the current system, the Social Security Trust Fund will not run out until 2035, at which time benefits will need to be cut by 20 – 30%. Therefore, even in a worst-case scenario, you can still expect to receive 70% of the scheduled benefits.

Coupon Leaf’s Recommendations

  1. Simply save 15 – 20% of your after-tax income, and put that amount into a retirement account. 

      OR

  1. Use the Social Security site to determine how much your benefits will be. This probably won’t be enough money for you to live comfortably, and therefore,
  2. Decide how much extra money you will need every month to live comfortably. Write down this number.
  3. Use the Bankrate Calculator to determine how much you need to save annually to achieve the income you wrote down in step 2. This is the amount you should be saving.

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