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How Much of My Income Should I be Saving for Retirement?

How Much of My Income Should I be Saving for Retirement?

16 May 2022

Planning for an enjoyable retirement that is worry and regret-free requires establishing the delicate balance between saving too little and too much. Work decades to amass as large of a financial nest egg as possible, and you’ll shrink your golden years to a brief window of time.  

Alternatively, suppose you exit the workforce as soon as you qualify for Social Security or a pension. In that case, you might run out of money to sustain your accustomed quality of life and return to the workforce for supplemental income when you should be enjoying your retirement. 

 

An Akron-Canton Financial Advisor can make your savings goals a reality. Start retirement planning with McGervey today. 

 

Our wealth managers provide valuable insight and financial services, whether you have started saving for retirement or need a second opinion on your retirement accounts. This article can help you figure out how much you should be saving as you advance towards your golden years. 

Crunching the Numbers of Retirement Saving

Most fee-only, fiduciary CERTIFIED FINANCIAL PLANNER™ Professionals with years of experience recommend saving between 10% and 15% of income annually. However, your unique percentage of income saved and preferred retirement age ultimately determine the number of years spent in the workforce.  

Meet with a fiduciary, fee-only CFP® who works with your financial interest in mind. You will benefit from comprehensive financial planning for the entirety of this professional relationship rather than merely relying on projections. Your planner will help you amass wealth regardless of whether the market is bullish or bearish in the years and decades ahead.  

Communicate your preferred retirement timeline and the details of your current financial situation to your planner. They will determine if saving 10%, 15%, or more/less of your annual salary is necessary to reach your target date for retirement. Your CFP® should also help you forecast whether your level of saving will allow you to enjoy your desired quality of life through the entirety of your golden years. 

Considerations Aside From Earnings

The money you earn from your labor is only one piece of the retirement financing puzzle. Your potential inheritance from parents and other relatives, your unique life expectancy, your current level of spending, and other factors, play important roles in determining how much money you should save for retirement.  

Even your preferred lifestyle during your golden years shapes your financial plan through the remainder of your career. If you have already traveled to unique lands and don’t plan on financing one or several college educations, you’ll be liberated to save less for retirement and retire comparably early.  

Alternatively, suppose your retirement plans involve golfing, vacationing in exotic destinations, and living life to the fullest. In that case, you’ll have to save much more from each paycheck to live the good life as a retiree.

Remember to inflation-proof your savings!

 

Regularly Revisit Your Retirement Plan With Your CFP®

Your timeline for retirement and your progress towards benchmarks have the potential to change. Passive investing in which you set and forget investments will backfire across the long haul. Markets, economies, geopolitics, and your life are dynamic rather than static.  

In short, everything is constantly in flux. You need a planner who provides active investment management guided by detailed financial modeling of your personal finances and altered as your life and the world around you change.

An initial meeting with a fiduciary, fee-only CFP® is undoubtedly essential, yet it is only a starting point in what is a lengthy race. You’ll delay your time to the finish line if you establish a retirement plan and simply assume it will work according to the strategy decided upon when first developed.  

You will likely change jobs at least once during your career. You might get married or divorced, have a child, inherit money or decide you want to retire sooner than initially planned.  

Instead of assuming your initial retirement plan will suffice, be proactive by meeting with your financial professional at least once per year. If a major life milestone is reached, connect with your CFP® soon thereafter to alter your retirement plan accordingly. Continue to make strategic alterations to the investing strategies that underlie your retirement plan, adjust on the go with the guidance of your planner, and you won’t have to worry about catching up down the line. 

Read: Managing Inflation Risk During Retirement With a Comprehensive Financial Plan

When in Doubt, Prioritize Saving

The stock market will inevitably ebb and flow, fluctuating with economic developments and geopolitical events. Instead of trying to time the market just right, continue investing a specific percentage of your earnings from each paycheck without exception. Your CFP® can actively manage these investments on your behalf.  

However, there’s the potential for multiple bear markets to occur before the point at which you retire.  

It is in your interest to save a percentage of each paycheck to offset potential losses in the stock market. Saving a portion of each check does not mean the money must be deposited directly into your bank savings account.  

Rather, saving money in the form of low-risk investment vehicles such as CDs, bonds, and money market accounts in addition to a bank account will help offset the harmful effect of inflation without subjecting the entirety of your hard-earned money to the risk inherent to the stock market. The challenge lies in determining the specific amount of money to save and invest from each paycheck. 

A planner at McGervey Wealth Management is here to help you run the numbers, then save and invest accordingly. If possible, save at least 15% of your annual income, redirecting the money to an interest-bearing bank savings account and low-risk investment accounts to balance the elevated risk of stocks, ETFs, and mutual funds.  

Save More as You Approach Retirement 

CFP®s often recommend embracing the 1% challenge in which you increase your savings by 1% each year. Though a 1% annual savings hike might not seem significant, it gradually becomes meaningful, especially if you continue working for several decades. Spend an additional decade in the workforce, abide by the 1% savings hike promise, and you’ll add 10% more to your aggregate savings.

Ages 40, 50, or Older? Don’t Panic!

If you are in your 40s or 50s and haven’t started retirement planning or haven’t revisited your retirement plan, don’t fret. You still have plenty of time to catch up. Seize the opportunity to maximize catch-up contributions to retirement savings plans.   

For example, workers age 50+ are empowered to contribute an additional $6,500 above the current cap of $19,500 for 401(k), 403(b), and supplemental employer-sponsored savings plans, allowing for an aggregate maximum contribution of $26,000. There is also an opportunity for older employees to catch up on retirement savings by contributing an additional $1,000 beyond the established $6,000 IRA limit. 

Consider these post-retirement income strategies during high inflation if you are already retired.

Next Steps

Many people aspire to achieve true financial independence, but the reality is, few can say they have reached that goal—even high-net-individuals. That’s where a lot of financial advice falls short.  Sadly, most financial advisors don’t provide the continuous proactive service you need to achieve your goals—or they don’t have the years of experience to do it correctly.

Don’t settle in your quest for finding the proper Akron-Canton retirement planning professional. Call our team of CERTIFIED FINANCIAL PLANNER™ Professionals to help you determine how much you should be saving each pay period and beyond. Check out the big questions we will ask as we begin working with you to best support your wealth goals.

 

Retiring this year? Make sure you are taking these four steps.

 

Instead of a cookie-cutter approach, we get to know you personally. We look forward to designing a retirement plan custom to your needs. Learn more about our retirement planning and investment management techniques. 

Download our helpful eBook and contact us today!

McGervey Wealth Management eBook

More About the Author: Matthew McGervey, CFP®, MBA

As a CERTIFIED FINANCIAL PLANNER™ professional, Matthew has a broad knowledge of personal financial planning strategies and solutions.