Reaching Your Retirement Milestones: How Much Do You Need to Save Before Retiring
Retirement can be a challenging and overwhelming prospect, especially if you don’t have the right financial tools or knowledge to make sure you reach your goals. However, many people are unaware of the necessary retirement milestones to hit to live comfortably after they stop working.
Strategies to Consider When Setting Retirement Goals
Let’s take a closer look at things you can do to position yourself for a comfortable, happy and financially stress-free retirement.
Calculate Your Retirement Needs
Before anything else, you must determine how much money you require to retire comfortably. Several retirement calculators available online can help you estimate your monthly income needs and build a budget, but they often lack vital information and variables. Take the time to consult with a trusted financial advisor for more detailed advice on the best ways to save.
Start Saving Early
In spite of what too many younger workers put into practice, the sooner you start saving and setting retirement goals, the better your position will be when the time comes to finally retire. Consider setting up an IRA or 401(k) account with an employer-sponsored retirement plan in order to take advantage of tax breaks and other benefits associated with these accounts. If your employer does not offer a plan, look into opening a Roth IRA or taxable brokerage account with an online broker. Remember, even small contributions can make a big difference over the long term.
Establish a Budget and Stick to It
Look at where your money is going each month and identify potential areas where you can cut back on spending to reinvest towards savings. You may also want to consider automating your savings with monthly transfers from your checking account into a savings account or retirement fund.
Consider Tax Implications on Retirement Savings Accounts
Tax implications play an important role in determining which types of accounts are best suited for pre-retirement goals. Traditional IRAs, 401(k)s, and 403(b)s offer tax advantages since contributions are made pre-tax, reducing taxable income in the current year. However, withdrawals made during retirement will be taxed at ordinary income tax rates.
On the other hand, Roth IRAs offer no upfront tax deductions but allow post-tax contributions (meaning they won’t be taxed once withdrawn during retirement). Depending on your situation and goals, one type of account may be more beneficial. Because of this, you must understand the options available before making any decisions regarding investments or taxes.
Explore Other Sources of Income
If regular savings aren’t enough to reach your pre-retirement milestones, exploring other income sources such as stocks, bonds, rental property investments, or annuities with a certified professional may be beneficial. All of these come with varying levels of risk associated but may yield higher returns depending on the market conditions.
Pay Off Your Debts
Overcoming credit cards, student loans, and similar obligations that charge interest can ensure more money is available to go towards savings. When setting retirement goals, explore options that allow you to contribute towards your retirement while also wiping out debt. This is especially important if you’re interested in retiring early without needing to rely on benefits.
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Breaking Down Financial Milestones by Age
Every retiree is different. What may seem like an extravagant lifestyle to some may be the standard you’ve set in life. While no magic formula can assure you’re ready to retire at any specific time, there are retirement milestones you can arrange to get you off to a great start.
As your work your way through life and set retirement goals, experts suggest you have the following amounts saved:
- By age 30: You should have the equivalent of your salary set aside in savings. If you’re a millennial in their thirties, there are specific savings strategies to consider.
- By age 40: Over the decade of your thirties, you should have amassed savings equal to three years of your base salary.
- By Age 50: At age 50, your target retirement savings should be six times your yearly earnings.
- By age 60: As you draw closer to your retirement age at 60, many financial planning experts agree you should have set aside a minimum of eight times your salary.
How Much Do You Need to Retire Early?
With so many variables, there’s no set number. However, you should generally save for a yearly income to be withdrawn over twenty-five years. For example, if you intend to live off $50,000 a year, try to save about $1,250,000 for retirement.
If you still intend to retire in your 40s or early 50s, it’s imperative that you work with a financial planner or wealth management expert to set goals and develop strategies. Few things cause more stress in retirees than the realization that they have to drastically cut back on their spending or reenter the workforce.
Summit Wealth Partners Is Here to Help You Reach Your Retirement Milestones
If you’re looking for an experienced and proven financial planner to help set retirement goals and ensure you’re meeting them, Summit Wealth is here to help you achieve a comfortable post-work life. We’ve helped individuals and households manage their complete financial picture for nearly four decades.
Start Setting Retirement Goals Today
Reach out to Summit Wealth Partners to to discuss what you want your future to look like and start creating retirement milestones that help you reach those goals.