Top three ways to plan for a successful retirement

While each of these popular ways of planning for retirement is different you will want to remember that each person’s situation is also unique and will need to be adjusted based on your individual goals.

Below are the most popular methods people use today to plan for retirement in order of difficulty.

50% Savings Goal Retirement Plan

The 50% savings goal is based on the idea that if you work for 50 years (18-68) and live 25 years in retirement (68-93) you’d need to have accumulated 50% of your total income over the course of your working career to cover your remaining life span. While it may seem impossible to set aside 50% of each paycheck, you would need to take into account the growth of any retirement plans and matching you may have which would help to alleviate the need to put in a full 50% on your own.

50% Savings Goal Assumptions and Example: Assume your income level grows from 20k to 100k over the course of your career. If after over 50 years your gross income was tallied and the total was near $2M you’d want to plan to have accumulated retirement accounts worth $1M by age 68.

Power Percentage Retirement Plan

The Power Percentage savings plan goal is to work towards setting aside a total of 35% of your income into your retirement savings.

This is based on the idea that if you take your current budget and add up your retirement plan deposit + employer match + savings + investments + mortgage principal (not interest or taxes or insurance) + medical payments + debt payments +student loan payments and then divide this number by your gross pre-tax income you arrive at a percentage that you will want to work towards increasing. The higher the percentage the better off your retirement plan’s success.

Power Percentage Goal Assumptions and Example: For example, if follow the formula above and your monthly activity is $1,500 and your monthly income is $5,000 then your power percentage is 30%.

  • If your power percentage is 10% or lower, you need to adjust your spending habits and lifestyle sooner than later.
  • If it’s between 11-20% you’re doing ok but should look at ways to improve.
  • 21-34% is good and you’re probably on track to have solid savings by the time you retire.
  • 35% or higher and you’re mastering your savings planning.

Retirement Savings Estimates by Age

These estimates are the most general as well as will fluctuate heavily based on the income earned over the course of your career. The idea is to have close to these savings estimates by each age milestone. It’s a decent concept and another good way to start evaluating your retirement needs, though salaries are not always linear and many may choose to change careers that can drastically increase or decrease their income and make these values either trivial or unattainable – so take these with some consideration.

  • In your 20’s you should be working towards saving 25% of your income into retirement + savings + emergency fund so that by age 30 you have savings equal to one year’s salary.
  • By age 35: Have twice your annual salary saved.
  • By age 40: Have three times your annual salary saved.
  • By age 45: Have four times your annual salary saved.
  • By age 50: Have five times your annual salary saved.
  • By age 55: Have six times your annual salary saved.
  • By age 60: Have seven times your annual salary saved.
  • By age 65: Have eight times your annual salary saved.

Don’t forget that the earlier you start saving for retirement and the more you put in the more opportunity you have for growth.

Rule 72 – How your nest egg grows

Rule 72 is a formula that finds the number of years required to double your money at a given interest rate is divided by the interest rate into 72. For example, if you want to know how long it will take to double your money at eight percent interest, divide 8 into 72 and you end up with 9 years.

So if you had $100k in savings at age 30 earning 7.2% interest you’re money would double every 10 years meaning by age 60 you’d have around 400k assuming things stayed on that track. Of course increasing your own contributions and the rise and fall of the markets would impact this as well.

Other Things to consider

These plans won’t work for everyone as each person’s individual retirement needs and goals are different, along with their income and lifestyles.

So take into consideration things like:

  • What are the expenses you have now versus expenses you expect to have at 67?
  • Will your mortgage be paid off by then?
  • Will you be collecting social security?
  • Will you have additional income coming in from rental properties?
  • What state do you plan to retire in (ie: will you have sales tax and income tax)?

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