Smart Quiz: You Should Save at Least ___ Times Your Highest Annual Income for Retirement…
Are you on track to live a comfortable life after you retire? Financial experts recommend having at least 10 years of income, based on your highest annual earnings, saved for retirement. What would you need to save each year to have enough in the bank to hit that mark? A lot depends on:
- Your current age
- How much you currently have in your savings or retirement account
- Assets and ongoing profitable income such as a house rental
- Existing and ongoing income
- When you plan to retire
How to Start
So how do you go about saving at least the recommended amount of 10 times the amount of your overall annual income? First, know how much you will need. Multiple your highest annual income by 10. If your highest annual salary is or was $50,000 per year, your goal should be to save a minimum of $500,000 before retirement.
Saving more would be great, but a lot of people struggle to set aside even a portion of that retirement goal. Here are a few things you can do at each paycheck to pad your nest egg.
Employer Sponsored Retirement Plans
Take advantage of any employer-sponsored retirement plan, like an IRA or 401(k). Find out how much your employer will match and contribute at least that much to maximize your employer’s contribution – aka, free money. You may opt to save more than the matching percentage, or you may opt to put additional monies into another form of savings.
Designated Savings Account
Set up a meeting with a financial advisor to discuss your savings options. One option is to open an interest bearing savings account and have a portion of your paycheck automatically transfer there each pay period. Banks offer a number of savings options based on your income bracket and the other accounts you already carry.
Tax Deferred Annuity
Funds deposited into this type of annuity are tax deferred until retirement. The money is often spread among various investments and may have a variable percentage rate. This type of saving does involve a bit of a risk based on the stock market, so you could lose money. Talk to a financial advisor about whether or not you should take this type of risk. It’s more common for a younger investor to be more aggressive and then back off as their savings builds.
One of the best ways to stay on track towards your savings goal is to have approximately 25 percent of your overall annual income go to savings. Diversifying your savings options will help you reach your goal that much faster.
~Here’s to Your Financial Health!
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