What follows is not intended as retirement planning, tax, or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek retirement planning, tax, or legal advice from an independent professional advisor.
Getting started is half the battle when it comes to saving for retirement (that’s what we’re talking about, right?). Setting near term goals are important too. You can do both! Be ambitious! It’s not easy, though.
Here are guideposts can be especially useful from our friends at Fidelity. (See their article here) A near-term target will help you get started, and that’s half the battle. These are not scripture. These are meant to prod people into action by working towards something rational.
At age 35, you should have saved an amount equal to your annual salary.
At age 45, you should have saved three times your annual salary.
At 55, you should have five times your salary.
When you retire at age 67, you should have eight times your annual pay.
In the journey to retirement, these guideposts are benchmarks to hit along the way. Having near-term targets helps you stay on track. These guideposts are structured in such a way that you can catch up while time is on your side. It’s not easy though:
• You begin saving in a workplace retirement plan, such as a 401(k), at age 25. You save continuously and without interruption until age 67.
• You start by making an annual salary contribution equal to 6% of pay, and raise the figure by one percentage point each year until you are saving 12% of pay.
• Your employer matches you at 50 cents on the dollar up to 6% of pay and your portfolio grows 5.5% a year.
• Social Security is factored in.
• Your income grows 1.5 percentage points faster than inflation each year.
Sounds reasonable, right? Consider that almost no one starts saving at 25 and millions suffer some sort of job interruption. Now you’re talking about saving 12% of pay by age 32. A common rule of thumb is 10% and, again, most folks don’t get serious about saving until they are in their 40s and 50s.
Meanwhile, you will need a healthy slug of stocks to earn 5.5% a year. Yet individuals have been net sellers of stock mutual funds for at least half a decade. Whether Social Security will be available when you retire is an open question. And many peoples’ wages are going down.
But wait! Don’t give up because it seems hopeless. It’s not. It would be a mistake to assume the experience of the last financial crisis goes on indefinitely. It will not. What this article really does is point out how difficult it is to reach retirement security without an early start, or hyper-aggressive saving at midlife. At least now you can see where you stand–and what to do about it.
Some content is based on Dan Kadlec’s article What You Should Save By 35, 45, and 55 To Be On Target, published on 09-21-2012 at Time.com. ( http://business.time.com/2012/09/21/what-you-should-save-by-35-45-and-55-to-be-on-target )