Everyone is different, but there are some general guidelines that apply to almost everyone when it comes to saving for retirement. One thing for sure – the younger you start a retirement savings plan, the better off you’ll be when it comes time to stop working. Pensions and government retirement plans may take care of the basics, but the more savings you’ve accumulated, the more comfortable you’ll be as you age.
Take the Free Money
Take advantage of any free money. An employer-matched 401(k) is one of the best ways to add money to your retirement account that will barely affect your daily budget. Your contribution is taken out of pre-tax dollars so you’ll hardly miss it in your paycheck.
Use a Multiplier
Sock away about 12 times your current income. According to the University of Wisconsin, the rule of thumb is that you’ll need about 80 percent of your current income to maintain your lifestyle. This savings combined with Social Security should allow you to cover your expenses each year without having to work. So if you make $35,000 a year, set a goal of saving $420,000 by the time you retire.
Base your savings on projected expenses instead and shoot to save between 20 and 25 times your projected expenses after your retire. Deduct your retirement payments from your pension plan to determine your needs. For example, if you think you’ll need about $30,000 a year to live comfortably and your pension or Social Security pays you $20,000 a year, you’ll need to save between $200,000 and $250,000 to fill the gaps.
Stick to Your Committments
Set up your own rules and then stick to them. One rule of thumb that works for jump-starting a retirement savings plan according to the University of Wisconsin, is to make a commitment to save one-half of every raise you get. The money will add up quickly and you won’t have to make any sacrifices to fund your retirement savings.
In your investment portfolio, the rule of thumb says that you should carry a percentage of stocks that equal 100 minus your age. In other words, if you’re 30 years old, about 70 percent of your portfolio should be invested in stocks. Stocks are riskier than other investments and the traditional thinking is that you can withstand the ups and downs of the market more effectively when you’re younger, but should reduce your risk as you near retirement.
The rule of thumb says that if you plan to draw 4 percent of your retirement savings every year, you won’t run out of money. To come up with the amount you’re going to need, you should have a pretty good idea of what you want to do after you retire, where you’ll live and what kind of money you’ll need to support that lifestyle.
Don't Spend Too Much
You’ve got to make wise decisions while you’re still working to have the money left over to even save for retirement. A rule of thumb to help is that you shouldn’t spend more than 30 percent of your monthly income on a mortgage.
Retirement doesn’t have to mean that you stop working all together. A general rule of thumb is that if you plan on working a part-time job, you can stretch your retirement dollars even further while staying socially active and busy.
Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."