Many people want to retire with enough money to last through their post-employment years. With the cost of living rising every year, it helps to know how much you need to put away to afford retirement. Studies suggest you should put away anywhere between 60 and 80 per cent of your pre-retirement income for retirement. Before starting or altering your retirement plans, make sure you understand exactly why you are saving and what most retirees are facing today.
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According to the Employee Benefit Research Institute, the average income for people ages 65 and older in 2008 was £18,989. This is up from £18,287 in 2007. Within the same age group, those who had graduate degrees earned £40,805, while those who held bachelor degrees made £29,866. With that in mind, though, two-thirds of Americans are not saving enough and one-half are not saving anything at all.
Having a nest egg that you can live off of after you quit working allows you to enjoy the fruits of your hard labour. To have a healthy savings account, there are several plans that people planning for retirement can use to grow money faster. 401(k), 503(b), IRAs and company pensions are very popular retirement saving vehicles. These plans accelerate your savings by using a compound interest formula. An additional benefit is that your money is tax deferred.
With the average income of retirees below what they wanted to have, many are not living the lifestyle they set out to do when they started saving. And now as more Americans save less--and some not at all--retirement funds will fall more on the government as Social Security becomes the primary source of income. The average Social Security check is £650 a month on average in 2009; that amount may be a far cry from what retirees envision.
Unless you are financially savvy, it's likely you'll underestimate future factors that will greatly reduce the power of your hard-earned savings. Inflation will be a major factor as it has been in the last 30 years; as an example, £32,500 in 1979 dollars has the same purchasing power as more than £95,550 in 2009. Take the time to review your goals and make the necessary changes in saving to achieve them. Get advice from financial advisers. It's also helpful to educate yourself on how money works with inflation and other principles that affect the value of your savings.
Saving for retirement is time sensitive. Starting early can establish good saving habits and vastly increase your retirement fund. By delaying your investment in retirement, you run several risks. You may have problems saving due to medical problems or other financial obligations such as a mortgage or other loans. The expenses of raising children, job loss and procrastination are other potholes that can derail your chance of a sizeable nest egg.
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