You want to be an employee only for a while, do you? Whether you want to retire at age 45, 55, or 85, you’ll need retirement funds. In most cases, Social Security benefits won’t be enough to pay your living expenses in retirement. Just how much money should you put away?

An appropriate savings rate can be determined in several ways, and the exact amount to save will depend on a wide range of determinable (and undeterminable) criteria. Using any of the six strategies below to estimate your savings requirements is a good first step.

1. Achieve the 401k matching contribution threshold set by your company.

You should put away enough money into your company’s retirement savings plan to get the full match. The match is equivalent to thousands of dollars in free cash. It’s well worth it to make the effort to catch the game.

2. Put away 20% of your salary.

Twenty percent of take-home pay is a good starting point for saving goals.

Rule of 50/30/20 is a straightforward method of budgeting that suggests allocating 50% of one’s income to essentials, 30% to indulgences, and 20% to savings or debt reduction. If your annual income is $75,000, your savings rate should be 15% or $1,250 monthly.

PLEASE TAKE NOTICE: This approach works best for those just starting in their professions. If you are in the middle of your working life or nearing retirement and haven’t been saving enough, you may want to increase your savings rate to more than 20%.

3. Compare your savings to others your age and income.

While there is no one-size-fits-all rule for how much money you should have saved by a specific age, there are certain guidelines you can follow. How much you should put away for retirement depends on many variables, including income, spending habits, desired retirement age, and other personal information. As a reference point, here are some standards to think about:

• Try to have a year’s worth of savings stashed away by the time you are 30. If your annual income is $75,000, that’s how much you need to be saved for retirement (plus an emergency fund). This might put you on solid ground for your financial future and help you get started saving for the long haul.
• Aim to save at least three times your annual pay by turning 40. The time has come to ramp up your savings rate and start taking advantage of retirement plans and investment opportunities provided by your work.
• Aim to have saved six times your annual wage by turning 50. As retirement age approaches, it is crucial to increase retirement savings and take advantage of catch-up contributions.
• Save eight to ten times your annual wage by turning 60. With retirement on the horizon, it’s crucial to have saved a sizable sum to ensure financial Security and freedom from worry.

If your savings rate is lower than these targets, you should consider ways to increase it.

4. Put as much money as you can into tax-deferred retirement accounts.

When people save money for retirement, the Internal Revenue Service (IRS) rewards them with tax breaks. Your tax burden will be lighter as a result. You could end up with hundreds, thousands, or even tens of thousands of extra dollars after paying less in taxes.

The timeframe for tax benefits also varies by account type.

• Traditional IRA or 401(k): These accounts immediately lower your tax liability. Your contributions will not be considered taxable income. If your tax rate is 15% and you contribute $5,000 to a traditional IRA or 401(k), your contribution is subtracted from your taxable income, saving you $750.
• Roth 401(k)s and IRAs: No tax benefits are associated with saving money in a Roth account. The funds accumulate without paying taxes, and you can take them out whenever you like.

Anyone over 50 can make a catch-up contribution to their 401(k) of up to $7,500 in 2023. That’s on top of the current maximum donation amount of $22,500. Therefore, the maximum annual contribution to these accounts is $30,000.

You can put $22,500 in 2023 into a 401(k), plus an additional $7,500 if you’re 50 or older. For those under 50, the IRA contribution limit is $6,500, while those over 50 can put in up to $7,500.

5. When you’re young, you should put away as much money as possible.

Even though your starting pay is low, saving as soon as possible is still in your best interest. When you begin saving at a young age, you reduce the total amount you need to save.

Why? Compound interest’s miraculous properties. The potential of compound interest to produce further growth gives it a special strength. It’s like a multiplier for your money, making your savings and investments go much further. The trick is to reinvest the interest you earn so that it can work in tandem with the investment to provide even greater returns. This compounding impact gathers steam over time, driving wealth accumulation at a brisk clip. The power of compound interest rests in its ability to reward perseverance and regular savings with ever-increasing rewards.

Know more about the power of compound interest.

6. Make a calculated plan for how much savings YOU will need to provide for your future Security.

The aforementioned strategies are simple means of getting your retirement savings close to your needs. However, if you want an accurate and specific response, you’ll have to do the math yourself.

This is crucial if you’re getting close to retirement age or want to make sure you’re setting yourself up for the future you desire.

How much money you’ll need to save for retirement depends on several variables, including what you expect to spend in retirement, how much money you expect to receive in retirement, and how much money you expect to withdraw from your savings.

• To get started, estimate how much money you will need to spend each year of retirement. And think about how your spending habits might change over the 20 years or more you plan to spend in retirement.
• You should then calculate your expected income. Social Security, pensions, annuities, and rental income are all potential examples.
• Find out what you’ll need to take out of savings to bridge the gap between your spending goals and your expected income.
• Consider variables such as inflation, investment returns, retirement age, and longevity.
• Consider other potential threats and unknowable.

Are you convoluted? It’s not necessary. You may calculate how much money you’ll need for retirement with the help of the New Retirement Planner. And knowing everything that is going to happen will give you some much-needed calm. Those who commit their financial goals to paper tend to meet and exceed them.