The question of “how to save for retirement”, or even “am I saving enough” can be a source of anxiety for many people, and one that is difficult to answer completely without a plan in place. When we finally get around to thinking about retirement, this is usually the first question that comes to our minds (we probably should be worrying more about not having a plan to begin with!).
In particular, the worry is usually about not saving (or having saved) enough – of course that means that you might retire too early, and run out of money before, potentially long before, your death.
If you are saving too much, obviously you might end up with far more to leave to heirs than you intended, and possibly will have missed out on the use of some of that money for yourself and your family during your lifetime (if that is your desire).
RELAX! (Well, kind of.)
There are two things to consider that should put your mind at ease, if only a little bit. The second one is better than the first, as you will see.
- First, you most likely DO have time to complete a full assessment of your retirement situation and generate a retirement plan for yourself, and your spouse as applicable. As long as you are able to pay your bills right now, and are not up against a loss of income situation that will change that picture for the foreseeable future, then you can just delay your retirement.
So this at least means you can still keep a roof over your head and food on the table (and the lights on, etc.). Unfortunately, it could also mean that you never get to retirement! And hopefully you never lose that job!
- Second, by viewing this website, you at least are already conscious of the need to think about your savings and your retirement plan. As life goes on, you will keep gaining more information about how much money you will need vs. how much you have saved, allowing you to make adjustments.
However, the later you adjust, the less time available for the adjustment(s) to take affect, and the greater the chance that you will have to keep working longer.
Now that you are relaxed:
First Things First
There are three “pre-requisite” steps that I recommend you take care of before you charge off to determine how much you need to be saving.
- I always recommend that you first make sure you have set some retirement goals, both financial and non-financial, so that you have a way to determine what actually represents progress when saving for retirement (if you need to, see my Retirement Goal Setting page for help with setting goals).
- Then, get as detailed an understanding of your current financial situation as you can. If you need to, take a look at my Understanding Your Financial Situation page to see how to start getting a handle on your current financial situation. It will show you how to measure your current “cash flow” situation, so that you can put away an amount for retirement that you can actually afford. You don’t want to start saving so much every month that you start to have to borrow money to meet your monthly bill payments!
- Then, make a retirement (life) plan. You can’t know whether you are saving enough money for retirement or not if you don’t have a plan to measure against. This is similar to your Retirement Goals, except that it focuses more on finding out whether you need to make adjustments to your spending during your pre-retirement years to set you up adequately (for your retirement years). Then, it attempts to map out your expected life events and financial needs that will change during retirement. If you need to, take a look at my Best Retirement Advice page to help you formulate a retirement plan.
Of course, all of these “first things first” steps are living and breathing tasks – once you have set them up initially, you need to come back to them every so often to see if changes need to be made to bring them up to date with your current knowledge and life experience.
AGAIN: Am I Saving Enough for Retirement?
Now that you have the fundamentals under control, you can legitimately start working toward an answer to the question, “Am I saving enough for retirement?”. Well, that DEPENDS. There are a lot of moving parts to this question.
In short, what is needed is a balance of your cash flows, income vs. expenses, and good estimates of your spending and saving over your pre-retirement years.
However, there is a “long” answer, which is where you really do need to get to, and it involves developing these details into the inputs needed to populate a retirement planning calculator.
There are a lot of retirement planning calculators out there that can do math for us. However, we need to choose the best of those, a calculator that helps us put together a detailed plan AND that builds in a minimum of uncertainty. Check out my Best Retirement Calculator page for a discussion of my choice for the best available calculator.
Feel free to leave me a question or comment on this page below – I’ll get back to you. Or, feel free to stop by my Wealthy Affiliate profile page and drop me a note there!