Sunday, July 12, 2015

How Much Should You Save For Retirement?

You are in a very good paying job; your life is going smoothly and you have all you want. But have you ever given a thought the time will not be the same forever, and as the time will pass, you will also grow old, and soon the time will come for your retirement. It is very important that you must save for your retirements. The majority of the people is in the dilemma and has no clear plans on saving for their retirements. So, in this article we will look at all the important factors that you must look for your retirement plans. So brace yourself and let’s join us with one of the most important rides of your life.

When To Start Saving?

One of the most important questions that everyone must focus upon is when is the right time to start saving for the retirement? The simplest answer for the above question is- ‘As soon as you can’. It is always advisable that you start your savings for the retirement when you are in your 20s. The reason behind this is that the sooner you will start saving the money, the more time you will have to grow your assets. In this way, your each year’s gain will generate self-gains in the next year. It is a type of wealth-building phenomenon that is also known as compounding.
Let’s take an example that will show you that how much big difference starting your savings young can make. If you start saving at the age of 25 and keep around $3000 a year in a retirement account that is tax-deferred for ten years and then you stopped saving-completely. The time when you will reach 65, your investment of $30,000 would have grown to more than $472,000, if you assume an annual return of 8%, even though you did not contribute a single penny after the age of 35.

Where To Save My Retirement Money?

You have options to save your retirement money in the tax-favored retirement accounts, for example, individual retirement accounts (IRAs) and 401 (k)s. These accounts have numerous plans, and the features of these plans vary from account to account. But the majority of these accounts will also help you in deferring your taxes on the money you are going to save and also the returns you will earn in your account.
Do you know what is deferring of taxes? It means whatever amount you are going to contribute in those accounts will escape the usual income taxes unless you will not start withdrawing that amount several years later. In this way, most of your money may earn the return investments over time. It can be an enormous advantage for you over an ordinary taxable accounts. Apart from all these things, these plans have numerous other advantages.

How To Invest Money?

This is one of the most important steps about which you must be fully aware of. To make your assets large enough so that you can see through your retirement, you will require the growth that stocks provide. Investing the money in the stocks can be the good idea. The reason is that the stock market has returned to 9.8% a year on average between the years 1926 and 2009. There may be times that the stock will give you some hair-raising moments, for example, in the years 1973-74 bear market, the stocks of the U.S. lost about 43% of their value, and it took three and a half years for market to recoup those losses.
But still after all these lose, investing your money in the stock markets is the best option to increase the treasure of your savings for your retirement.

How Much Money You Will Need?

This is the key question of which everyone wants the answer. There is one thumb rule that everybody must remember is that you are going to need at least 70% of your pre-retirement salary yearly to live comfortably after the retirement. This much amount is more than enough for you if you have already paid all of your mortgages and are in good health. But if you have some other plans, like buying a new home, want to travel the world or want to go and get a Ph. D. then you may need your 100% of your annual income, or even more.
Making of the realistic estimates is extremely important. Always be honest about how you want to spend your retirement time, how you want to live and where you want to live. These estimates are very important when the time comes to figure out how much you will require saving so that you can live a comfortable life after your retirement. One of the best ways to start estimating the retirement cost is to have a closer look at your current expenses in the various categories so that you can easily figure out how they may change in the future.
As a general rule, it is you who has to do all the calculations and take all the decisions. As the requirements may vary from person to person, doing all the calculations by yourself can give your positive results.
The answer for this question is- ‘As much as you can’. However, numerous financial planners suggest that you should save around 10% to 15% of your income for retirement, and also starting from your 20s. It is just a general concept, at last we are talking about your retirement, and hence, it would be best that you do your homework. Because you are the one who has all the information about yourself. Your expenses, your savings, your needs and many more, and hence calculate properly. Also, it is a good idea to establish saving targets.

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