How much are you really supposed to save for retirement? Hey, it's Jon from Financial MD, welcome to today's Didactic Minute.
Now, we get this question all the time and I think we see this in any kind of personal finance writings, videos, books, or anything over the decades on personal finance. Retirement -- long-term savings -- has been a part of a budget or should be. But exactly how much of it should you be saving?
Years ago, maybe it didn't use to be an issue because we had pensions. People relied on their employers. They relied on the government. There really wasn't a 401(k) until the '70s, and so the idea of saving for your future didn't necessarily become a thing until then. So 401(k)s came out; IRAs came out -- long-term investment vehicles that were geared towards retirement, and so then the discussion started coming up around how much exactly needs to be saved. And so then people would say 10%, 15, 20, 5, you know, whatever the case might be. Save enough to get the match. There's all sorts of things out there. And, of course, we're going to preface this with: Saving anything is good. This isn't personal financial advice. Everybody has to consult their financial adviser. But saving something is always better than saving nothing. But how much is that? Where do you put it is a completely different conversation for another video, so search in our videos for that. We'll talk some more about that.
But for today it's just strictly how much of your budget should be dedicated to long-term, specifically, retirement savings… investing in the 401(k), the IRA…whatever it is for you. How much do we put in there? What's that magic percentage number? You'll hear Dave Ramsey say certain things which, again, is perfectly good advice -- 10%, 15, 20…whatever that number is. But there is no magic number, so that's kind of the spoiler alert. There is no magic number.
There's not a certain percentage that will get you exactly to your retirement goals because it starts with a goal. You have to know what you're saving towards what you want. And how do you come up with a retirement goal? What does that look like? You've got to start thinking without any kind of numbers…without any kind of age or income or anything like that. Picture what retirement even looks like. Do you even want to retire? Do you want to work till you're dead? Do you want to work till you're 40? Do you want to do the FIRE Movement of Financial Independence Retire Early? Maybe. But those are the questions you have to ask first before you ask the question of how much do I even need to save on a monthly or annual basis.
So, figure that out because that question of what it looks like a good financial planner should be able to sit down with you and say, "Okay, I see what you want your retirement to look like." Now here's what that means in retirement income. That means you need to have $6,000 a month in retirement income. That means $10,000 a month, or whatever that is at this age -- 55, 60, 65. And so that then means you need to start saving this much because at age 65 -- whatever it is -- you have to have a lump sum of a million, 2 million, 5 million…who knows, okay. So there's a lot that goes into that, that's all I'm trying to say. So, figuring out how much to save has a lot of other questions before it, not to mention where to save, how to invest -- all those things.
So, shoot us questions below. Put a comment in if you have questions. Direct message us. We love to help any way that we possibly can and share this if you think it's helpful.
This is Jon from Financial MD, we'll see you next time.
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