According to a recent GOBankingRates survey, 22% of respondents don’t think they’ll ever be able to retire, and 23% of Americans have nothing saved for their golden years. Do you belong to this 23% category? If so, then ask yourself another question. Do you want to spend the golden years of your life in poverty? Or do you want to lead a comfortable life after retirement?

If you wish to live well after retirement, you need to start saving money from now on, even if you are in your 50s. In this post, we will discuss some options.

4 Tips to Start Saving for Retirement

Set Away 15% of Your Salary Annually

If you haven’t started saving for retirement, you need to get to it right away. A 15% yearly contribution might be sufficient to meet your goals. If you fall behind on your payments, you’ll have to save a lot more cash each year to catch up. As we age, the money we need to save to achieve the same goal doubles every decade. So, if you save for 10 years, you will have saved for 10 years.

Calculate Retirement Income as a Percentage of Pre-Retirement Income

Many financial advisors believe that in retirement, you should be able to spend around 70% to 80% of your pre-retirement income. If you make $60,000 annually today, you should set aside about $42,000 to $48,000 per annum when you retire.

It’s not a universal rule that applies to everyone, and you may need to save far more money. Many people may need income streams that satisfy 80%, 90%, or even 100% of their pre-retirement budget. All hinges on your present and future spending patterns.

Stick to the 4% Rule

You can also use the 4% rule, which indicates that you can take out 4% of your retirement funds in your first year of retirement.

The following formula is used to generate retirement savings based on the 4% rule:

Retirement savings target = Annual income required x 25

So, if you have $1 million in savings, you will take out $40,000 in your first year of retirement, either all at once or over time. You might increase this amount in subsequent retirement years to keep up with cost-of-living increases.

Following this guideline will give you enough cash when you retire. The 4% rule ensures that your money will survive for at least 30 years.

Focus on Saving 10x Your Current Income When You Reach Retirement

As previously noted, many financial advisers and businesses, such as Fidelity, recommend saving about 10 times your annual pay by the time you retire. While this may not be the exact number you’re after, it’s good to keep in mind. You may constantly adjust it to meet your anticipated retirement needs.

The cost of living is increasing with time. So, living expenses are expected to grow even more by the time you retire. If you don’t save more for your anticipated retirement expenses now, you will have to depend on credit cards or payday loans to cover them later. Now, it is up to you. Do you want to get into credit card debt or payday loan debt in the future?

Remember, you can get sued if you don’t have enough money to repay these high-interest debts. You can enroll in a credit card consolidation program or a payday loan consolidation program to repay creditors. Those options are always there. But these debt relief programs will work as long as you can make the required monthly payments. And, you need to have money, even if the amount is small.

How to Determine How Much Money You Need to Save

Here are four key strategies to figure out how much you need to save:

Calculate the Items Your Savings Will Pay for Once You’re Retired

The majority of identical expenditures you incurred before retirement will be covered by your retirement funds.

Here is a handful of them:

• Food
• Shelter
• Clothing
• Transportation
• Utilities
• Healthcare
• Insurance
• Travel
• Gifts

You should have a good idea of your budget if these areas are predicted to stay the same from pre- to post-retirement. You’ll need to find out how much your new way of life will cost if you have big ambitions for your retirement years.

It’ll assist if you keep in mind the debts you’ll have once you retire. Not making payments may impact your budgeting, and your retirement savings may not be sufficient to meet any budget shortfalls.

Remember to account for inflation and how it may influence your finances. Inflation rates in 2022, for example, were over 6% for the first time in decades. While this is much greater than the national average, annual inflation of roughly 2% should be considered.

Calculate How Much You Should Save Each Year

A simple technique for calculating your savings goals is to aim for a multiple of your current annual earnings. While the actual amount depends on your projected retirement spending and the particular assets you choose for your retirement portfolio, these statistics can help you see where you stand.

According to Fidelity Investments, you should save at least 15% of your pre-tax income for retirement. Many other financial advisers recommend saving for retirement at a comparable pace, and research from Boston College’s Center for Retirement Research supports this.

On the other hand, putting away 15% of one’s wages is only sometimes enough to save for retirement. The 15% rule of thumb presupposes several things, one of which is that you begin saving early in life. If you want to retire properly by 65, you should start saving at the age of 25 if you’re going to retire by 62 or at the age of 35 if you want to retire by 65.

To live well in retirement, you’ll need an annual income of 55 percent to 80 percent of your pre-retirement wage. Depending on your spending habits and medical expenditures, you may need more or less. However, a range of 55 to 80 percent is a reasonable approximation for many people.

The 15% rule will only provide sufficient retirement savings to pay some of your costs. For example, Social Security will almost certainly supply you with a percentage of your retirement income. Overall, the 15% estimate should provide you with a steady retirement income that lasts until you’re in your early 90s, at about 45 percent of your pre-retirement wage.

Only some people can start saving at 25 and keep saving 15% of their salary into retirement. If you start later in life or save a bit less, you might have to work longer, remove more expenditures, or invest much more of your income into retirement to make up for the shortage of time and accumulation.

As per Fidelity, there are a few simple retirement savings standards by age that may help you to calculate your retirement saving progress:

Consider Other Sources of Income

For retirement, there are various savings methods and income sources to consider.

A 401(k)

One of the most popular methods to save for retirement is through a 401(k). These employer-sponsored investment vehicles let you save and invest up to $20,500 a year (in 2022), or up to $27,000 if you’re over 50, for your retirement.

Your 401(k) contributions can be invested in various securities, and your employer may match your contributions, doubling the effect of your efforts. Funds can be donated without penalty at 59 ½ or earlier with specified limits.

Individual Retirement Accounts

IRAs are offered by various financial institutions, such as banks, credit unions, and brokerage firms. The two most frequent types of IRAs are traditional IRAs and Roth IRAs.

Each has its own set of tax advantages based on your situation. In 2022, individuals can contribute up to $6,000 per year to an IRA, which they can use to invest in various assets, including real estate. You can donate up to $7,000 annually to an IRA if you’re over 50.

Social Security Benefits

These are given to retirees aged 62 and older (or those who become disabled or blind) who have worked for years enough to earn sufficient credits to qualify. This can provide a steady stream of income during retirement.

A Pension Plan

A pension plan may provide you with a regular income stream. Find out if you qualify, how much cash you’ll receive, and the pension requirements if your firm offers one.

Annuities

These are another type of retirement investment to think about. Insurance companies offer long-term investment vehicles. After purchasing an annuity, you will receive monthly payments throughout your retirement years.

What Is the Most Crucial Step in Creating a Retirement Plan?

As per Wells Fargo’s analysis, covering healthcare costs is one of the most significant issues for most future retirees. Indeed, 49% of Americans consider this one of the most crucial components of retirement preparation.

Prioritizing this financial concern is wise since healthcare will most likely be one of your high ongoing costs as you age. One recent research indicated that a senior couple retiring in 2020 would spend $325,000 on Medicare premiums, prescription medicines, and other out-of-pocket health expenditures.

It’s only possible to pay such a large sum for medical services if you’ve budgeted for it as part of your retirement strategy. Consider these expenses while determining your retirement savings objectives, and either boost the amount you’re investing in current retirement accounts or contribute to an HSA if you’re qualified. Make your contributions automatically each month, and you’ll have the opportunity to grow your nest egg without thinking about it.

Let’s Have a Conversation:

Do you feel it is crucial to save for retirement? If so, why? Have you saved for retirement? How are you preparing for your retirement?