It’s not a secret that Americans aren’t saving enough for retirement. The National Institute on Retirement Security (NIRS) says that 75 percent of Americans are not on track to meet their retirement goals and 21 percent are not saving at all.
Most financial planning experts, backed by many studies, agree that the average American needs to save at least 15 percent of their pre-tax salary for retirement. However, the 15 percent rule of thumb takes a couple of factors for granted — namely that you begin saving pretty early in life. To retire comfortably by following the 15 percent rule, you’d need to get started at age 25 if you wanted to retire by 62, or at age 35 if you wanted to retire by 65.
It also assumes that you need an annual income in retirement equivalent to 55 to 80 percent of your pre-retirement income to live comfortably. Depending on your spending habits, outstanding debts, and medical expenses, more or less may be necessary but 55 to 80 percent is a good estimate for most people.
When it comes to saving for retirement, time is your greatest ally. The money you save into an IRA or 401(k) in your 20’s is exponentially more valuable to you than the same dollars you will contribute in your 30’s, 40’s, and 50’s because of the time value of money.
If you are late to the retirement savings game, then you may need to save more than 15 percent of your annual income to reach your retirement goal. Conversely, if you have teenage or young adult children, have them open their Roth IRA accounts now and get them to fund as much of their W-2 earnings as possible up to the $6000 annual maximum. They may not understand the importance of it today, but they will be grateful they did in the future!
Scott Johnson is the CEO of DecisionPoint Financial, LLC. He is a CERTIFIED FINANCIAL PLANNER™ and an Accredited Investment Fiduciary. He and his firm provide comprehensive financial planning and investment management services to individuals and institutions. Scott can be reached at (480) 553-6249 or scott@dpplanners.com. Visit decisionpointfinancial.com.
DecisionPoint Financial, LLC is a Registered Investment Advisor. All investments involve risk. Risks associated with investing in securities include increased volatility and loss of principal. Past performance is no guarantee of future results. The information herein is educational in nature and does not represent investment advice. All rights reserved. DecisionPoint Financial, LLC © 2021.