Planning for retirement is one of the hardest financial decisions for a person to make because there are so many unknown factors that could affect the outcome of the decision. Many people do not want to put too much into their retirement savings because it could affect their quality of life today, but do not want to under fund their retirement because that will make it harder to live comfortably during their retirement. So how much should an individual put into their retirement savings?
The Rule Of Retirement Funding
A good rule of thumb to use for determining the amount of money an individual should be putting into their retirement savings is to save 10% for the basic needs, save 15% for comfortable living, and save 20% to be able to travel. This rule of thumb is intended for the people that begin to save for retirement at age 30 or before and is a pretty good measure of how much money you will need to maintain your current lifestyle during your retirement years. If you are starting to save for retirement after the age of 30, you will need to add 5% to the amount of money that is recommended for saving in order to be fully financed when you reach retirement age.
The 10% savings rate that is recommended to cover the basics will ensure that the person will have their basic needs taken care of during their retirement. This includes housing, utilities, food, and clothing, but not much else. If you are not making very much money, or your family obligations do not leave a lot of extra room in the budget for retirement savings, then saving 10% is a good beginning to make sure that you have some money for retirement.
To maintain your current standard of living, experts recommend that you save at least 15% of your earnings in a retirement savings account. This will ensure that you have enough money to cover the basics, plus some extra cushioning for emergencies and small luxuries. Although this will not allow you to live a life of luxury during your retirement, you will be comfortable and be able to handle any small emergencies that come your way.
If you would like to travel around the country or see distant lands during your retirement, then you should be saving at least 20% of your income in a retirement savings account each year. Traveling can become very expensive and, even if you only plan one or two trips each year, the expense of traveling can quickly deplete your retirement savings. By following this retirement rule of thumb, you can make sure that you will be living comfortably and have the funds to do the things that you would like to do after you retire.