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Dear 3Rivers: How Much Do I Need to Retire?

Dear 3Rivers,

I'm only 25, but I've been hearing since even before I landed my first, full-time job that I should start saving for retirement now. I'm contributing 3% of each paycheck to my 401(k), and feel a bit better about it, but I have no idea what I'm working towards. What's the standard amount that people save up to retire comfortably? It's hard for me to imagine that far out, and take into consideration what expenses I might need at 50+ years older than I am now. Can you provide even a ballpark figure?


Planning for the Future

How Much Do I Need to Save to Retire? | Image source: / Artist: iris wright

Dear Planning,

We commend you for thinking about your retirement at such an early age! It's never too early to start planning for your Golden Years - doing so now will ensure that they're gleaming once they arrive.

Your question is a great one - and extremely common. You're right in that we hear, Save, save, save! from the time we enter the workforce, but no one is telling us, Save to x amount!

There are a couple of reasons for this. One is that the amount you need to save up, as a 25-year-old, will be much different than the amount your parent or grandparent needed to save up, starting at age 25. The rising cost of living causes the amount needed to retire to climb generation after generation. In addition, the amount of money needed to retire comfortably can vary greatly from person to person, depending on lifestyle, health, location, and of course, future plans.

A standard rule of thumb is that you'll need about 70-80% of your pre-retirement annual salary to live comfortably - and that's assuming you're in great health and have paid off your mortgage. But if you're planning to buy or add-on to your dream home, travel the world, or go back to school just because, then you'll likely need 100% of your pre-retirement yearly salary to get by.

The key is to make realistic estimates about the expenses you'll have in retirement. This really comes down to how you want to live once you retire. Will you live more simply than you do right now, or do you plan to live a bit more extravagantly?

To get started on estimating those future costs, it's a good idea to map out your current expenses and predict how they might change. Will you have paid off your mortgage by the time you retire? Then that's a monthly bill you don't need to account for. If you won't be working, you won't have the cost of a daily commute. On the flip side, your health costs will likely rise.

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Taking into account the most recent lifestyle and income data and age pension rates, a couple could retire, living a modest lifestyle, on about $42,000 - $58,000 a year. Now, multiply that by how many years you plan to be retired (say, 30), so you're looking at $1,260,000 - $1,740,000 for a couple, for a comfortable, 30-year retirement. And these numbers are assuming you have paid off your mortgage! Feel a little better that you've started saving up already?

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It's a great start, contributing 3% to your 401(k). Try to up that by 1% each year, until you've gone as high as your plan allows. In getting raises and gradually putting away more money, we promise you won't even notice the "missing"dollars from your paycheck! If your employer matches what you contribute by a percentage, that small increase will make all the difference. Also, consider other ways to start saving, like budgeting, investing, and supplementing your income. And put all of that extra cash toward your retirement.

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We know it seems like a long, long road, and a totally un-achievable goal, but with the perks of a 401(k) or IRA, creative, additional saving habits, investing, and a whole lot of patience and dedication, you will be able to retire comfortably. Keep looking toward the future and you'll start to see the light at the end of the tunnel sooner than you might think!

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For more information on retirement planning, schedule an appointment with a 3Rivers team member today!



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