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How much money will you need to save to retire comfortably? It’s one of life’s big question marks, and over half of Americans worry they’ll outlive their savings, according to a recent survey from The Harris Poll and Northwestern Mutual. Without a crystal ball, there’s no way of knowing for sure, no matter how diligently you’re socking money away. Your future health, the rate of inflation, and the stock market are just a few of the variables. But you can increase the odds of a secure retirement by planning ahead. And there’s plenty you do know — about your lifestyle, your goals and how you’ll define “retirement.” Want to travel the world or stay close to home? Do you have a pension? Are you planning to downsize your home? Will you work part-time? There’s no one way to estimate what you’ll need, especially with so many variables at play. But here are a few common rules of thumb to help:1. 10 Times Your Salary: Save at least 10 times your salary by the time you retire. And there are benchmarks by age: By 30, you’ll want to have one year’s salary saved. By 40, 3x your salary. By 50, 6x. And by 60, 8x. Unfortunately, many getting closer to retirement age don’t have nearly enough, by this measure. According to the Northwestern Mutual survey, 52% of Gen Xers with retirement savings have just 3x their income or less — not even close to the 10x recommended by age 67.
2. The 80% Rule: Save enough to have 80% of your pre-retirement income each year of your retirement. So if you earn $100,000 a year, that means having enough on hand to draw down about $80,000 a year in retirement. Why not 100%? Although healthcare and inflation may add to your expenses, the theory is that you’ll need less once you’re not saving for retirement, commuting to work, and so on. Of course, this rule doesn’t help you estimate a total figure.
3. The 4% Rule: Estimate the amount you expect to spend in a typical retirement year and divide it by .04. For example, if you foresee $80,000 in expenses, you’ll need to save $2 million. So what? There’s no magic retirement number or one-size-fits-all retirement plan. But there are smart habits that underscore every method of calculating: Save early, save often and give compound returns the best chance of building wealth by investing in a tax-advantaged retirement savings fund such as a 401(k) or IRA.
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