It can be a daunting task just trying to schedule what we will be doing over the next week. So when it comes to thinking about what we will be doing in 10, 20, or even 40 years we just cross our fingers and hope we make it that long. However, we can’t put off saving for our retirement, or else retirement will never happen.
At TDC we offer all of our employees the option to contribute to a 401(k) plan and TDC will also contribute up to 1% of your salary into your 401(k). This is a great opportunity to start savings for your future. We will cover two common questions that many people have when it comes to retirement.
We will be helping out our imaginary friend Ryan who has the above two questions. Here is some background on Ryan.
How much do I need at retirement?
No one really likes hearing this answer but “it depends”. How far out from retirement is one of the key variable when it comes to figuring out how much you need at retirement. This is because younger people cannot count on social security and have to deal with many more years of inflation. While older individuals will most likely have social security and a shorter period of time to worry about inflation.
To answer this question for Ryan we must first see what his salary will be in 33 years (target retirement age – current age). The formula for this is:
current salary * (1 + 3% inflation rate)^years till retirement
Ryan’s estimated salary at retirement will be $145,800. Now let’s assume that Ryan was able to pay off his house and his new flying car before he retired (it is 2049… there should be flying cars by then right?). Without these extra payments he can actually live on just 60% of his retirement salary. So he will need to be able to withdraw $87,480 from his 401(k) per year at retirement until he sadly dies in a tragic skydiving accident at the age of 85. If we take the $87,480 times the 20 years he will live in retirement, we can estimate that Ryan needs $1,749,600 to retire at the age of 65.
Here is a helpful link to a free online inflation calculator that will show what your salary will be when you retire.
How much do I need to save now?
Well… like the answer above “it depends”. A person’s current age, amount currently saved, and marital status all factor into the answer of this question. However, there is one answer to this question that is always right no matter the situation: As much as you can. Saving just $5 dollars is better than saving nothing.
However, to reach your target savings number there is a certain amount that needs to be saved on a regular basis. For Ryan’s scenario of hoping to retire at 65, and starting with $15,500 saved, he will need to contribute $875 per month to reach his retirement goal.
Ryan, like most people, is not able to go from saving $0 to $875 each month so what are his option to lower the amount he needs to save each month?
Are you wondering if your current savings plan is on track, or wanting to know how much you will need at retirement, then check out the website below. It is an easy to use retirement calculator to help you decide if you are on track to become a millionaire.
*** Disclaimer: This article was not written by a finical adviser, just a guy who enjoys finance, savings, and all things numbers. We encourage you to use this as a stepping stone into learning more about how to save for retirement. ***
All of our articles are written by various members of the TDC team.