How Much Should You Save? Meet Your Retirement Goals with These Tips
If you’re 40 or younger, it’s tough to predict how much money you might need when retirement is decades away. A few key calculations, however, can help you make sure your savings plan is on track.
Saving Depends on Life Stage
Rebecca Pace, a Cincinnati-based financial planner and CPA, recommends putting aside at least 10 percent of your income when you’re in your 20s and 30s — and even more if you’re single. “I wouldn’t expect they could continue to add a lot to it while they’re raising a family, but if they’ve put something aside early, it should continue to work for them until they can save again,” she says.
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Another good reason to save aggressively now: The younger you are when you start, the longer your money will have time to grow. This means you’ll need to set aside a lot less to reach the same goal than if you waited just a few more years to get started.
For example, if you’re 25, you only need to invest about $3,600 per year to end up with $1 million by the time you’re 65 if your investments return 8 percent per year. But if you wait until you’re 30 to start, you’ll need to set aside about $5,400 per year to end up with the same $1 million at age 65. And starting at 40 requires $12,700 a year to reach the same magic $1 million. Finally, you’ll need a whopping $34,000 per year to reach the same goal if you procrastinate until you’re 50.
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