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How much money do I need to retire and when should I start saving?

Better start saving for retirement sooner rather than later considering economic uncertainty. How much do employees need put away?

FILE PHOTO: Raindrops hang on a sign for Wall Street outside the New York Stock Exchange in Manhattan in New York City, New York, U.S., October 26, 2020. REUTERS/Mike Segar/File Photo

When determining how much a person wants to save for retirement requires one to think about a few questions to calculate the total value:

  • At what age do you want to retire? Social Security payments can be claimed at sixty-two but a smaller payment will be distributed to those who retire before their maximum retirement age of either sixty-five or sixty-seven. The official retirement age depends on the year a person was born. For most that are starting to save today, the maximum benefit amount for Social Security will be available at to retirees at sixty-seven.
  • Where do you plan to retire and how does the cost of living compare to where you currently live? If you plan to retire in a place where the cost of living is higher or lower than where you are working, those differences will need to be accounted for. For those who plan to move to more expensive areas, saving more may be necessary and vis-a-versa.
  • Will you still have a mortgage to pay when you retire? Housing can be a major cost to retirees and there is a major difference between making rental or mortgage payments, versus just paying property taxes.
  • Will you receive Social Security benefits? If you are going to be receiving federal benefits when you retire, saving less in a private retirement account may be an option.

How much should be saved?

This amount will be different for more retirees because it forces one to consider the factors above and a few more. Retirees must decide on a monthly income they hope to see and save to ensure they are able to pay themselves that income for twenty years or more. Citizen’s Bank recommends that total retirement savings should be evaluated at various ages or years spent in the workforce.

For instance, at thirty, the bank recommends that one has saved their annual income over the course of their career. The median income for those ages 25 to 34 in the US is $928 a week, totally $48,256 over the course of the year. By thirty, one should have saved around $48,000, if that is their annual income.

Over the next ten years, workers should try to save three times their annual income. Remembering that incomes typically increase as workers age and the median income for forty-year-olds is around $1,100 a week or $57,200 a year, around $171,600 should be saved by workers for retirement. And finally, by retirement age, a worker should have between ten to twelve times their average income saved. The median income for a person between the ages of fifty-five and sixty-four is $1,130 or $58,760 a year, meaning that one should have around $646,330 saved. This coupled with Social Security may be enough to sustain someone for maybe two decades.

When should you start saving?

All financial experts are in agreement that workers should begin saving for retirement as soon as possible.

The sooner funds can be replaced into a private retirement account, the more time those funds have to compound. Most retirement portfolios see an average growth rate of five to eight percent, so long as market conditions allow.