The 70% Rule
As a general retirement rule, you will need to replace 70% of your current income to retire comfortably during your golden years. So, if you typically earn, say, $60,000 per year, you will need to generate $42,000 per year once retired in order to maintain a comparable standard of living.
However, many Americans are falling short of this goal. Just 25% of retirees hit the 70% benchmark each year, according to new research from Goldman Sachs (GS). The majority live on less than 50% of their former income.
If you are still saving toward retirement, making these three moves now can help you get closer to reaching that 70% mark.
Increase Your Savings
When it comes to saving and investing, the key is to delay gratification now to benefit later.
Reducing your cost of living now will help you live more comfortably down the road. As a general rule of thumb, you should be saving around 15% of your income. If you are on a tight budget and can’t hit 15%, squeezing out even an extra 1% of your salary to put toward retirement will add up. With compound interest, the sooner you make this change, the bigger an effect it will likely have.
Additionally, consider having savings outside of employee-sponsored 401(k)s. These plans have contribution limits which can hold you back, even if you can afford to increase your savings. So, in addition to a company plan, consider opening a personal IRA or similarly tax-advantaged account.
Finally, be sure to keep your money invested for the long run, instead of constantly buying and selling. Over the past two years, we’ve seen how volatile the stock market can be. But remember, when it comes to retirement, you’re investing in a goal that may be years or even decades down the road. Don’t let the short-term movements of the stock market impact your future.
One Small Change
Another tip to help save toward retirement is to make a small but effective lifestyle change. The idea is that this small change be significant enough to free up a bit of monthly income that you can reroute directly to your nest egg – over time becoming one giant leap for your savings.
For example, you could downgrade to a smaller apartment, pick up a side hustle, or even simply cut out your daily trip to Starbucks (SBUX). Every percentage point will help you get closer to that 70%.
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