How Much Should You Save for Retirement?

One day you’d like to stop working, but how much should you save for retirement?

When it comes to retirement savings, a lot of things may be running through your head…
Do you haaaave to save for retirement?
And then reality hits, yes you do have to save for retirement.
The best things in life are free, but as country singer Chris Jansen said, “Money can’t buy happiness, but it could buy me a boat.”
Retirement savings buys you the ability to not work!
And that’s pretty awesome.
YIKES!
Let’s break the financial ice on how much you should save for retirement.
how much save for retirement
I’m test driving a new regular post on the blog-diggity, called: Ask Carly. This is a way for us to stay connected and support one another on our journey to gaining financial independence. Sometimes you reach a fork in the road where you aren’t quite sure what your next steps should be.
You don’t need to figure this money stuff out alone!
I’m stoked that I receive my first official Ask Carly question!
Ask Carly The Finance Plan
A long-time reader, Dave writes:
Here’s a question:

How much do you put away for retirement/old age as a percentage of what you earn?

And subquestions like:
What factors into your decision (e.g., your age, your expected return, etc.) and
What do you do if you have to raid it for something unexpected (e.g., car falls apart, unexpected medical expenses, etc) — do you double down and save more and try to refill what you would have/should have had? Or just keep going?

-DD
Shout out to Dave for writing to Ask Carly (thanks man!) and I feel ya on dealing with life’s crazy surprises that come with a price tag. It’s tough, but you can bounce back.
The short answer is: a good rule of thumb is to invest 10% of your pay for retirement.
Here’s the long answer on how much you should save for retirement.
Take things one step at a time, otherwise stress and overwhelm kicks in. Here’s how to overcome anxiety and stress with money.
I created the Four Independence Days, which are clear-cut milestones, and your roadmap with money. (You can learn ALL ABOUT the independence days in this free Epic Guide to Managing Money).
Here’s an intro to the Independence Days and how they’ll apply to Dave.
Independence Day 1: Save 10%
Automatically invest 10% of your income. This is where Dave will get back on track by automatically investing each month.
As far as an expect return, from 1928 to 2014 the average return of the S&P 500 was 9.8%. In your projections I’d assume an 8% return to be conservative.
Independence Day 2: Get out of debt
Before trying to double down on retirement savings make sure to knock out any medical debt, or car loans, by paying the minimums and push to pay $300 or more extra towards your highest interest debt.
If Dave has no debt, then YAY! He’ll jump to Independence Day 3.
Independence Day 3: 3- 12 Month Emergency Fund
Instead of having to raid retirement, start building an emergency fund for car accidents, job loss, ER visits, etc. Have 3-12 months of expense in a liquid savings account that is separate from retirement savings.
Sound impossible to save thousands of dollars?
Now that youre debt-free you can take what you were paying towards your debt and complete your emergency fund.  Or if Dave’s already debt-free then push to save $300, $500, $1000 or more each month towards an emergency fund.
Independence Day 4: Life Purchases
Save for a home, car, or college tuition.
Hello life.
Now Dave’s retirement savings is rolling again, his debt is paid in full, he’s got money in the bank for a rainy day, and now the sky’s the limit.  He can now save up and have a plan for the fun things in life like buying a car, pr home. Or now this is when he can increase retirement savings.

How much can you contribute for retirement savings?

In 2017, you can contribute up to $18,000 annually in your 401(k) plan, and additional “catch-up” of $6,000 for those 50 and older.
Plus, you can contribute $5,500 in a IRA, and an additional “catch-up” of $1,000.
There ya have it Dave.
In a nutshell, start investing 10% now, knock out any debt, build an emergency fund, and then you can go bananas on doubling down on retirement!
Love Carly

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