Saving and investing for retirement doesn’t have to be complicated. There are plenty of reputable financial advisors out there to assist you along the way. The key is to determine how much to save for retirement based on what you’ll realistically need, and then develop a plan to achieve your goal. When setting your retirement goal, you should:
- Focus on how much to save and where to invest it.
- Create a plan and track your progress.
- Understand how much you’ll receive from Social Security, your pension, etc.
- Monitor your plan and adjust as necessary.
Begin by considering the lifestyle you envision in retirement. Many experts recommend that you try to save enough to use 70 to 80 percent of your current annual income. This could include income from all sources, including your retirement accounts, other investments, Social Security and possibly a company pension.
If you’re not sure how much is enough, spend some time using a retirement calculator. You can find hundreds on the Internet. Most investment companies have calculators you can use.
You can also find calculators at Bankrate.com and AARP.org. Be prepared to enter a lot of information, and much of the information will be your best guess. These calculators will give you a starting point for understanding how much you will potentially need in your retirement years.
Try to adopt an automatic investment plan, investing the same amount of money at regular intervals regardless of share prices. Known as dollar-cost averaging, this strategy helps you avoid trying to time the market and enables you to benefit from the effects of compounding returns.
Your retirement costs can be influenced by many factors. How much are your everyday living expenses? Will you have health care expenses? How often do you plan to travel? And don’t overlook the effects of inflation on your savings. You may need more than you think to achieve a comfortable retirement.
After you develop a retirement plan, review it annually to ensure that your savings and investment choices are on track to meet your retirement goals. If they’re not, you may need to increase your savings, rebalance your investments, or rethink your expectations for living in retirement.