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For many people, saving for retirement is a bit tricky. We recognize that it’s deeply important, yet because retirement is in the future, it feels a bit abstract. Our present day money issues seem much more pressing by comparison.

Yet if you want to enjoy a happy, stable and secure retirement, it’s important to get past short-term thinking. The actions we take today will determine our quality of life once we’ve passed our working years.

To help you better understand your future retirement needs, let’s take a closer look at how to determine how much money you’ll need for retirement.

Calculating your rate of savings vs spending

Determining how much you’ll need to save for a stable retirement depends on a number of variables, including age, salary and rate of saving. For example, those who live to be 95 will need significantly more money than those who only live to 75.

For the purpose of this exercise, let’s assume you live to 92, which is a few years longer than the average person’s lifespan (it pays to be conservative in this regard, given the advance of modern medicine). Let’s also assume that you are 40 years old, and you plan to retire at 70. You’ve saved $200,000 for retirement on an annual $75,000 salary, and you save 10-percent of your income every year.

Under this scenario, you’ll have saved $2.3 million by the age of 70 — just enough to support yourself at your current quality of life until you’re 92. To perform your own calculations with your own variables, we suggest you use an online retirement calculator such as this one. These calculators can give you a good idea of the progress you’re making toward retirement.

Unfortunately, most people aren’t saving nearly enough. Studies show that half of Americans are on pace to retire without enough savings to cover retirement expenses for even a single year.

To help you achieve a successful retirement, we encourage you to do the following:

  • Increase your annual savings rate to at least 10-percent
  • Make full use of 401k company matching funds and other tax-advantaged savings vehicles
  • Lower your expenses and reduce your debt load to cut interest payments
  • Reinvest the money you save with an experienced financial planner

The takeaway

Saving for retirement is critically important — and to do so successfully often requires assistance from an experienced professional. Visit Sterling Financial to see how we can help you achieve your retirement goals.