Worried that you don’t have enough money saved for retirement? Haven’t even started? Find out how much you should have saved for retirement by age 45.
What are the best money management practices? I don’t know what comes to your mind when you are asked this question. For so long money management skills have been discussed and we will still talk about. This is because nearly all financial health habits revolve around that. For instance, do you research loans before applying? How can you save funds without budgeting your spending? You have to plan your expenditures early before you receive your monthly income. If you don’t do this, the chances are you are likely to get yourself into financial crisis. It is so important to cultivate some good financial habits. This blog discusses one of such habits – saving for retirement. In the course of our discussion we will respond to the question – How Much Should I Have Saved for Retirement by Age 45? So, let us begin right away…
Importance of Saving for Retirements
We all want to live comfortable lives upon retirement. However, it all depends on how we deal with our finances right now. As an individual. You need to know the kind of life you need to live after retirement and start planning for it today. One best way of doing that is to prioritize paying yourself. You may be wondering what this means because the money you earn is all yours. Well, you pay yourself by saving for retirement. You need to have a retirement saving account where you set aside a portion of your salary before start spending on other activities. You may be having bills to settle and that too should be prioritized. However, paying yourself should always come first. The following five reasons show why it is important to save for retirement.
- It is unwise to rely on Social Security Funds. That alone may not be sufficient to sustain you. Besides, there are so many risks associated with SSF. For instance, there have been fears of the struggle with threats of insolvency in the long run. These means their possibilities of lessened benefits in the future. For this reason, it is important to supplement the benefits you are entitled to.
- There has been an increase in aggregate life expectancy, a trend expected to continue. On a personal basis, this means you are more likely to live for many years even after retirement. Therefore, you need to save enough funds that will sustain you then.
- No one works forever. You may feel think that you will keep working until your last days. That is a dream that might not come true. The fact is, it is impossible to be highly productive your whole life. As you advance in age, you will slow down and some things will be difficult for you. So then, the desire to work your whole life should never be an excuse for not saving. Besides, life has a lot of turns. A situation may arise and force you to retire earlier than expected. Where will you turn to in case you did not save?
- There are possibilities of facing a lot of obstacles in the future compared to the past or present. It is important to be optimistic and live by faith that everything will be okay in the future. Nevertheless, this is not something to bank on. The future is never guaranteed and that is why it is important to save for retirement. This is not meant to discourage optimism, but rather to demonstrate the significance of saving.
- Eliminate the chances of relying on your family. It is not a good thing to depend on children. Once you retire, you do not have to be someone’s responsibility, not even any of your family members.
There are so many reasons why you need to save for retirement. This is a serious matter and you should always make it a top priority. But then how much should you save annually? This question leads us to the next part of our discussion.
How Much to Save
We are faced with different conditions. Individuals are also in different income categories. No one can ask you to save $100 or $500 every month. However, it is possible to determine the much you need to have saved once you attain a certain age. It is suggested that at 45, you need to have saved an amount that equals 8X your average annual expenses. Let us break this down practically. If, for instance, you spend $90,000 every year, your saving account should have at least $720,000 in order to comfortably live once you retire. However, savings does not only involve what you deduct from your salary and put in saving the account. The following constitute savings:
- Pre-tax investments
- Rental investments
- Rental property
- Post-tax investments
Generally, anything of value may amount to savings. Are 45 years of age? Where do you stand in this regard? If you are far from attaining the 8X your average annual spending, then you need to do something to improve. You only have less than 20 years of productive life. So, accelerate your savings in these remaining years before thinking of what you can get Social Security. Work towards financing your lifestyle without Social Security benefits or pensions and you will live comfortably.
There are other criteria used to determine how much you need to save apart from what we just discussed. Let us briefly discuss two of them.
- The 4% Rule. With this approach, you only need to divide your expected yearly retirement earning by four percent. This will give you the total amount you need to have generated at retirement.
- Multiples of your annual salary. According to this approach, you are supposed to have accumulated 50% of what your annual salary at the age of 30. It demands that you start saving 15% of your yearly salary starting from the age of 25 years and save around 50 percent in stocks.
The Bottom Line
It is important to save for retirement. Make sure when you want to borrow online you go for the lowest interest rates like Bugis Credit. We have discussed the reasons why it is important as well as the approaches you can use to determine the amount to save with time. Now that you clearly understand the importance of saving and what you need to have accumulated as you age, be determined to save come what may.