That’s hard to predict, especially with so many other goals on your immediate horizon. With time, your financial needs and desires will shift, as well. They’ll change and evolve along with the size of your family, lifestyle interests, and other unpredictable circumstances life has in store for you. Market performance, rates of inflation, and increases in the general cost of living factor in, too.
Basically, nailing down an exact number is impossible. That’s why we have percentages.
The 5% Rule
If you’re in your 20s, you’re in luck. Start saving at least 5% of your income now. Each time you receive a pay increase, bump up your savings until you reach the maximum. Do this for the rest of your working life and you should be in a great position for retirement. If you’re 30 and just starting to save, you need to start contributing at least 10% now. By 35, boost it to the maximum amount.
The Stock Percentage Ratio
Subtract your age from 100. Put that percentage of your overall portfolio in stocks. So, at age 30 that would equal investing 70% of your portfolio in aggressive, growth-oriented stocks. At 33, that would decrease to 67%. On your 35th birthday, rebalance that number to 65%...and so on.
The “Safe” Withdrawal Rate
For many years, an annual withdrawal rate of 4% was considered the benchmark for retirees to follow. The thinking was that an annual withdrawal of 4% should be enough to maintain a retiree’s lifestyle while ensuring that he or she doesn’t outlive his or her savings. The snafu is that life expectancy varies. So do rates of returns on investments. Inflation can seriously throw that number for a loop, too.
A word of warning: While it’s a solid guideline for to aim for, it’s not one to base your entire retirement plan on.
The Preretirement Income Percentage
Some financial professionals say you’ll need 70% of your preretirement income to live comfortably in retirement. Others say 60%, 80% – even 100%. It really depends on your circumstances. Do you see yourself retiring on the French Riviera, or moving in with your kids?
Seriously…who’s to say?
The bottom line:
Unfortunately, it’s one that can only be drawn in the sand. The best you can do is start saving today, and planning for tomorrow.