How much should you save for retirement?
There's not one answer to suit everyone, so consider some of these factors when determining what's right for you.
Everyone wants to retire with an adequate amount of retirement savings. However, there are so many factors that cannot be predicted that people often feel overwhelmed when they ask themselves, “How much should I save for retirement?”
Due to simplicity, it is recommended that you try and establish a set percentage of your income to save for retirement.
What The Experts Say
What percentage should you be saving for retirement?
I took some time looking through the books on my shelf trying to see if there a consensus to the question, “What percentage should i save for retirement?” Here is what I found from my research:
* Dave Ramsey from The Total Money Makeover – 15% of your income
* Austin Pryor from The Sound Mind Investing Handbook – No set percentage, but instead there is a nine page retirement planning worksheet
* David Chilton from The Wealthy Barber – 10% of your income
* Mary Hunt from Debt Proof Your Marriage – 10% of your income
* David Bach from The Automatic Millionaire – 10% of your income
* Larry Burkett from Money Matters: Answers To Your Financial Questions – 5% savings, 5% retirement. It seems like he is suggesting 10% unless you are doing some saving for other things.
Conclusion: There is no right answer that applies to every person in every circumstance. When this is the case, we are forced to consider our own situation and our own needs to establish an appropriate amount to save for retirement.
What is the Right Amount To Save For Retirement?
With the exception of Austin Pryor, all of these other folks are trying to boil your retirement numbers down into a single simple percentage. Why do we need these percentage suggestions? Because most people won’t do the work necessary to complete a full retirement worksheet. Most folks just want you to give them a number so they can save accordingly.
But, your retirement situation is completely unique.
* Is there a company match? If yes, you can save more with less of your own income.
* Did you start young? If yes, you’ve got a good head start so you could gravitate to some of the lower suggestions.
* Do you plan to significantly increase your income in the future? If yes, saving 10% of your income might result in the appropriate nest egg.
* Do you plan to retire? If no, a smaller retirement balance would be appropriate.
* Are you in debt? For those in debt, paying off debt should be a greater priority than saving for retirement.
I believe that Christians should be saving for retirement, but I also believe there is a point when Christians should be able to say they have enough for retirement. If you don’t believe this, then the amount to save for retirement is simple – as much as you can.
However, I believe it is virtuous to appropriately balance your retirement savings so you save an appropriate amount.
“Two things I ask of you, O Lord; do not refuse me before I die: Keep falsehood and lies far from me; give me neither poverty nor riches, but give me only my daily bread. Otherwise, I may have too much and disown you and say, ‘Who is the Lord?’ Or I may become poor and steal, and so dishonor the name of my God. (Proverbs 30:7-9 NIV)
On the other hand, if someone is in their 50’s and is just starting to save for retirement, they may need to surpass some of the suggested percentages listed above.
Save While You’re Young
Retirement planning for young people is very different than retirement planning for more mature adults. Because of this, I suggest a special retirement saving approach for those who start retirement savings in their early 20’s.
Give generously and save aggressively when you are younger. Since Dave Ramsey suggests the most aggressive saving percentage, you should make it your goal to start off saving 15% for retirement.
After five years of saving 15%, prayerfully consider reducing your retirement savings by 1-2%. Repeat this process every 3-5 years.
When you are within 10 years of retirement, revisit your numbers. If you want to increase your retirement back up to 15% for the final stretch, then that is fine. However, if you are on track to reach your retirement goals, then just keep up with your smaller retirement savings.
Remember: You must personalize this information. How old were you when you started saving? How much money do you need in retirement? Do you plan to work in retirement? How you answer this question greatly impacts what will and will not work for you.
Do you think people should ever consider reducing their retirement contributions, or is more always better? How do you determine what percentage to save for retirement?
Craig is a fulltime missionary in Papua New Guinea who writes Money Help For Christians and Help Me Travel Cheap, a frugal family travel blog. He is the author of Money Wisdom From Proverbs, has a Masters of Divinity degree, and (most importantly) eats homemade pizza with his family every Friday night.
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