How to calculate how much you need to save for retirement
BIRMINGHAM, Ala. (WBRC) – When it comes to saving for retirement, there is no one-size-fits-all approach. Financial expert Jay McGowan, a senior advisor at The Welch Group, emphasizes that it’s never too late to start saving, even if you’re in your 40s. While starting early is ideal, he assures that individuals can catch up with diligent effort and smart financial decisions.
The key to planning is understanding your specific financial needs. McGowan advises starting with foundational principles: reduce high-interest debt, establish emergency savings, and leverage employer-sponsored retirement plans like 401(k)s, especially if there’s a company match. These are the first steps to laying the groundwork for a secure retirement.
For those looking to calculate exactly how much they need to save, McGowan says it begins by understanding your spending needs in retirement. “What you need to look at is how much money in today’s dollars it takes for you to live your life,” he explains. Subtract any income sources like Social Security or pensions from your total monthly expenses, and the difference is what your savings must cover.
McGowan suggests using the 4% rule, a general guideline that allows retirees to withdraw 4% of their savings annually without depleting the account. For example, if you need $36,000 annually from your portfolio, you would need about $900,000 in retirement savings.
While there are online retirement calculators available, McGowan says financial planning is highly individual. Each person’s situation, including their income, debt, and goals, plays a crucial role in determining how much they need to save. For those who feel uncertain about their financial strategy, McGowan advises seeking the help of a financial advisor, as they can tailor a plan to fit your specific needs.
In addition to saving, McGowan says it is important to have a retirement lifestyle plan. Many retirees struggle with purpose once they’ve left the workforce, so it’s vital to plan not just for financial security but also for how you’ll spend your time in retirement.
Ultimately, the path to retirement is a combination of sound financial habits and consistent savings, tailored to meet your unique future needs.
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