Question: How much do I need to save each month in order to retire? I don’t have a pension.
Let’s be honest for a second, if you’re in your 20s or 30s, you have no idea how what your retirement needs will be 30+ years down the line but you know you should start saving now. Let’s keep it simple and use a Rule of Thumb or two.
In retirement you won’t have a childcare expenses, life insurance payments, or a mortgage payment (hopefully!), but you WILL have extraordinarily high medical expenses that just seem to keep rising. So let’s estimate that you’ll want 70% of your current income. Social Sec. will make up the rest. Now go ahead and figure out what that is...multiply that number by 20. That’s how much you have to save. That’s your number! Easy, right? By the way, that little trick was called the “Rule of 20.” It works by assuming you live off the 5% on your nest egg. (Get it? Rule of 20 x 5% =100)
One major caveat to all this. Inflation. CNN Money estimates that if inflation rates continue, $1 35 years from will be worth $0.40 today. To get your actual number, divide your number by .4.
To keep it simple, let’s do a case study: Say the Smith’s household income is $60,000/yr. Their savings target should be: 60,000 x .70 = 42,000. 42,000 x 20 = 840,000. To accommodate inflation: 840,000 x .4 = $2.1 million. Now, that’s your number!
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