Retirement may seem far off, but it’s something you need to be thinking about right now. If you aren’t already saving, it’s important to start as soon as possible. If you are in your 20s, consider working up to 10-15 percent of your pay, increasing by 1 percent a year. If you are in your 30s, however, you may need to increase your savings rate by more—for example, 7 to 8 percent annually. But what’s the target amount you’re working toward?
We’re all different, so it depends on your particular needs. One formula is to calculate your yearly expenses. A common figure is to have 70-85 percent of that amount to spend in retirement.
For example, if you currently spend $50,000 a year, 75 percent of that would be $37,500.
Multiply that figure by 25. Multiplying by 25 allows you to see the amount you would live on if you withdrew from your retirement fund at the “safe withdrawal rate” of 4 percent. So in this case, $37,500 x 25 = $937,000. Keep in mind this example is for illustrative purposes only—every person has different needs.
No one-size fits all formula exists to accurately project your retirement needs. But thinking about your future retirement is a powerful way to help you make better decisions today.