For many years, financial advisors have encouraged workers to set aside 10 percent of their salaries each year to save for retirement. But today’s financial experts warn against following the financial advice of yesterday. Because there are so many factors at play, 10 percent will not be nearly enough for many individuals to comfortably retire.
Be Wary of the Ten Percent Rule
While many financial advisors do still throw out 10 percent as the magic number for retirement savings, that advice may have been more appropriate in years past. Based on inflation over the last several decades, it’s not hard to imagine how much the cost of living could skyrocket in the future. What seems like a large chunk of change today might not stretch as far a few years into the future when the cost of living is two or three times what it is today.
There’s No Magic Number
So how much should the average person save for retirement? There’s not exactly a wrong number or a right number because there are so many different factors. It’s difficult to provide across-the-board financial advice for every consumer because things like salary, debt burden, lifestyle, and other obligations create a unique financial situation for every person.
Calculating a Target Savings Rate
There are many different available resources to help people estimate the amount they’ll need for retirement, such as the HighPoint Advisors’ Retirement Savings Calculator. This calculator allows individuals to calculate how much they should save based on such factors as current age, current income, current savings, expected growth in income, expected age at retirement, and many more. Resources like this are very valuable to consumers because they allow them to plug in different numbers to see how much they would need to retire based on different financial scenarios. While it’s impossible for any financial calculator to provide an exact number, this tool can provide a reasonable estimate for many people. Even if that number is unattainable right now, it’s better to set aside something than nothing.
The best financial advice consumers can follow is to simply live below their means and save what they can. By spending less and investing the rest in a well-rounded variety of interest-bearing products, people will be able to set themselves up for a comfortable, financially sound retirement.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.