How much should I save before retirement?

Question

I am 22 years old. Assuming that I plan to retire at age 65, taking into account inflation and assuming I will have an average pension plan from work, how much do you think I should have saved up in order to retire comfortably and with peace of mind. A million? 2? What are your thoughts?

Answer 1

As much as you possibly can. I'm 23 so I am in the same boat as you. Put in as much as you can from your paycheck toward retirement. Make sure you leave yourself money to play with and to save for other things you want, but save as much as you possibly can. Also, see if your employer offers 401K plans and contribute at least as much as they match. Try to put in at least 5% though starting out. You can't necessarily count on pension plans as they seem to be disappearing everywhere. Look into an IRA if you don't have a 401K. Best of luck!!

Answer 2

It's hard to tell what inflation will do in that many years. At 3% per year inflation, $1 today would be $3.46 in 43 years.

If you retire today with a million dollars and a decent pension, you'd be plenty comfortable - not wildly rich, but comfortable. But pensions as such seem to be going away - things like 401K's are much more common - so having a pension that's the equivalent of $2000-3000 a month today, is not real likely by 43 years from now. And social security isn't likely to be what it is today, either.

Save as much as you can. You have enough time that compounding can take your savings to heights you never imagined.

Good luck, and good for you for thinking about this now.

Answer 3

Well its great that your thinking about this now. You have the advantage of longterm compound interest that should help you reach your goal.

First, you must determine you the income necessary in todays dollars that you feel you could live comfortable upon. Next you must determine how much that money is worth in 43 years from now. To do this you can use excel and multiply todays dollars by 1 + the inflation rate (currently 3.2%) so this means that you would multiple - todays dollars x 1.03. Do this 43 times and it will give your todays income in future dollars.

For example $50K today will be worth $190K in 43 years assuming 3% inflation.

Next assume that you wish to live off the interest or increase in equity value. Assume 10% return in the stock market that would mean that in order to get a "salary" of $190K you would need to have invested around 1.9 million dollars assuming a 10% return.

Considerations, your financial needs will increase as you get older so 50K a year is not that much. Inflation can be more that 3% and your rate of return may not be 10%. You would need to discount your "needed retirement savings return at 65" less your annual social security benefit and other retirement incomes (401K) etc.

This gives you a start.

Uneasy but almost there

Answer 4

Save as much as you can. If you are in a good profession and figure to earn a high income, participate in your 401k at work (if they have one) and max out everyyear. Also, contribute to IRA's every year like Roth.
You mentioned pension by your company right now, two points about that
a) Pensions are dying out, and companys are having a terrible time funding them, Don't expect the pension to be there when you retire, or if it is there...it will probably be woefully insufficient.
b) You will most likely change company's several times in your career..you probably won't qualify for a pension in your current company. the good thing about a 401k is everytime you switch employers, you can roll your 401k into the news companys plan with no penalties etc.

Inflation is a real problem, in the US, UK, everywhere actually. Most governments are printing money like crazy, diluting the money supply which dilutes the value of that money. You should make sure to do a couple things in any investment portfolio, make sure it is diversified, and be more aggresive in your youth...getting more conservative as you near retirement.
I would also put at least 10% of your portfolio into precious metals like gold/silver as a hedge against a major inflation occurence. Its definitely possible as something is going to give as more and more people and govts spend credit or put another way, money that doesn't exist.

Answer 5

Great foresight.
Many people start thinking about their retirement only when they are 60! Here is my suggestion.
You might have heard about the power of compounding interest.

Just start saving a very nominal amount REGULARLY from today;say $ 100 a month.

And by the time you are 60, you would have a very huge sum as savings.
The regularity is important and you should reinvest all the interst earned.
To know the exact figure,check with your banker.

Answer 6

The earlier you start saving, the better off you are. If you have a 401K plan at work, and your employer matches, try to pay about $5K per year and invest in a mix of stock funds. In 40 years, with 8% average return you'll have over $2M. Every time you get a raise, increase your percentage until you max out.

Answer 7

save for an EMEGENCY FUND FIRST> at 22 I would start after thaT by saving 10 percent of you GROSS income. as you get older and make more money still save 10 percent of ALL the wage increase that you get also. when you have saved 6 months salary in cash for an EMERGENCY fund then start again in another account for retirement. once youve saved 10 thousand then you can start investing. you need to get educated in investing along the way as you save cash for emergency.