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How I Save 25% Of My Income For Retirement

How I Save 25% of My Income For Retirement

Saving for retirement isn’t easy, but neither is living on Social Security. My family isn’t banking on the future of entitlements, which is why we funnel 25% of our income into long-term savings. Check out the methods we use to hit our goals while preserving our quality of life.

Know how much you’ll need

We didn’t arrive at a 25% savings target by accident. When deciding how much to earmark for retirement, it all came down to maintaining our current standard of living, and the “average” numbers weren’t adding up.

Merrill Lynch’s 2017 Finances in Retirement Survey found that 30 years of post-employment living requires $738,400. Fair enough, but how does that number translate into annual income? Assuming we follow the 4% rule, which holds that retirees can withdraw 4% of their savings per year without running out of money, this figure shakes out to $24,613 per year. That’s only a little more than $2,000 per month. Ouch.

Coins stacking up
Image Source: Getty Images.

As you can see, while three-quarters of $1 million may seem like a lot of money, there’s a good chance it won’t come close to what you actually need. To hone in more closely on this figure, a good rule of thumb is to multiply your annual expenses by 25. That’s roughly what you’ll need to maintain your current standard of living through retirement.

Money in a mouse trap
Image Source: Getty Images.

Invest pay raises

You’re not alone if it seems impossible to prioritize retirement. Half of Americans are in the same boat, according to a 2017 survey conducted by HomeServe USA, which found that 31% of respondents had less than $500 in savings, and 20% had no savings at all.

broken piggy bank
Image Source: Getty Images.

Retirement planning can seem unimportant compared to immediate expenses, but you can’t afford to waste time. Work up to your savings goal by splitting pay increases, bonuses, and other “extra” income into emergency liquid funds and long-term accounts. This strategy allows you to anticipate life’s surprises while planning for the future.

Avoid credit card debt

Depending how you use it, credit card debt is either a dirty word or a helpful tool. We harness ours for cash rewards and frequent flyer miles. And we don’t carry balances from month to month, thereby avoiding the usurious interest rates charged on credit card balances.

We recently opened a credit card that deposits cash rewards directly into our Fidelity-managed retirement account. This kills two birds with one stone: Allowing a person to build their credit score while at the same time saving for retirement.

man with credit card on the phone
Image Source: Getty Images.

Buy less house

Our suburban Seattle home wasn’t much to look at in 2013, but the location and price were perfect. We paid well below the 28/36…

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