Money Makes The World Go Round
How Much Money Do You Need For a Comfortable Retirement?
What would it take for you to feel financially secure as you pass middle age and head into a comfortable retirement? A study by Magnify Money attempted to answer that objectively, using research data collected from the United States Federal Reserve and the Federal Deposit Insurance Corporation (FDIC). The results reflect the American experience, but should nonetheless provide a little insight for everyone in developed countries.
What You Need for a Comfortable Retirement
If you had at least three months’ worth of living expenses ready to spend, some money set aside for emergencies, and you’re close to having a million dollars as a nest egg for retirement, it would seem to be a very stable base from which to plan your future.
Unfortunately, the data seems to indicate that most people in the US don’t have anything like that kind of security. People around their forties have a median total savings of a little under $16,000 USD, and that’s it.
Of course, it should be noted that the median skews upwards because the more well-off are considerably further ahead, so the reality is a lot of people will have even less.
Some Tips to Help You Save
Retirement plan provider Fidelity suggests you save 15% of your annual income. You should put that money in some kind of investment, and not just leave it in regular savings accounts where it won’t do any work for you.
Depending on your situation, any one of the different government retirement accounts might be appropriate, or index funds or other investments might be better for you. Specifics will vary among people and their situations, but, the one thing common to all people is to make sure you do something with that 15% to allow it to grow.
Younger people tend to have lower incomes, so 15% might be too much of a burden to maintain in your early working years. If that’s the case for you, try to save what you can, and then see if you can increase how much you set aside by 1% every year until you hit 15%.
Life is full of unexpected surprises, and you need an emergency fund to handle those. The ideal emergency fund size is something around three to six months worth of living expenses. It’s not just a matter of paying for whatever problem comes up, such as your car breaking down, but also covering costs while the problem is being dealt with, like your car being held for repairs and the impact that might make on your life.
As you reach your forties and maybe through no fault of your own you haven’t been able to set aside enough money to take advantage of compound interest, your best recourse is to focus less on how to set aside money from what you’re currently earning and instead look to how you can increase your income.
You might be a genius at saving money, but later in the game, small slivers of savings won’t catch up to your needs, whereas if you can squeeze in extra earnings, you can scale your savings to much more effect.
Of course, everyone’s situation is different, and there is no catch-all advice that will work for everyone. Fortunately, these days there are lots of resources available online for free, and experts you can reach out to for some personal consulting for a fee.
What’s important, though, is that you take the step of thinking about your financial situation in the future. The simple act of making plans, at whatever scale you can manage, will ultimately make you grateful for your foresight later in life.
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