If you plan to live comfortably and need a certain amount of money every month to do so, then how much do you need to save for retirement? If your investing strategy is to pay off debt and hold on to more earning power than it can earn on your account, then it might be smart to figure out what your savings ratio should be.
That is, how much of your portfolio will you really need to stay in retirement? Here are three things you can count on in retirement and how to invest to have money left over to live off.
1. Social Security will cover about 70 percent of your average retirement cost.
Remember that Social Security is only supposed to replace about 35 percent of your income. While that sounds great, remember that the average Social Security benefit is about $16,500 per year. That means you’ll need about 73 percent of your expected take home to live on. If you’re willing to work a few extra years, you can find ways to increase your take home to 100 percent, and Social Security will help make up the difference.
2. You won’t have to borrow money to cover your expenses.
If you’re in debt or don’t have a huge income, you might need to borrow from a relative or your personal savings to cover your expenses. As a retiree you won’t need to borrow money, and you can build savings as you age. If you’re taking a little risk with your investments so that you’ll have some return when you retire, then you might need to invest in your savings again every time you make a withdrawal. Some experts suggest waiting to start taking withdrawals until your age 70 and taking more every year after that.
3. You won’t feel discouraged when you don’t have enough.
While the rule of 25 works very well if you know exactly how much money you need each month, it can be very frustrating when you don’t have enough money to live on each month. Let’s be honest, it’s easy to feel like you don’t have enough when you’re 50 and have been saving for years, and have to start day trading to stay ahead of the game.
On the other hand, you never know what’s going to happen in the future. If you plan to live a simple, middle-class lifestyle, you can live comfortably and just try to slow down and plan as much as you can for the future.
It is best to start saving while you’re young, and to do so while you still have the money to contribute. By starting when you’re young, you have more time to accumulate a nest egg to make up for any losses if the market tanks or your investments drop in value.