How do I save for Retirement?

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Saving for Retirement: Part 1
How do I save for retirement?


Most people fall into one of three categories when it comes to saving for retirement:

  1. I’m saving for retirement and I feel good about my plan.

  2. I’m saving for retirement but I’m not sure if I’m doing enough/doing it right.

  3. I know I should be saving for retirement but I’m not.

  4. I’m not saving for retirement and I’m ok with that.

If you’re in category #1, maybe you’re here just because you’re curious or you want to check my work. If you’re in category #4, at least you’re here reading this article: that’s a great step! If you’re in categories #2 or #3, maybe what follows can help.

Saving for retirement includes three major decisions: how much to save, what bucket/instrument to save in, what assets to invest in.

This installment addresses how much to save for retirement. There are a million tools out there to help you decide how much you should be saving for retirement. The assumptions on retirement age, rate of investment return, and social security expectations will vary the outcome widely. Because of the power of compound interest, the age you start saving for retirement is the most important factor by a long shot. Here’s a good rule of thumb: 

Age you start saving for retirement Percentage of income to save

20s 10%

30s 20%

40s 30%

50s 40%

60s 50%

If that table doesn’t look very scientific, that’s because it’s not. It demonstrates the importance of starting early and the urgency that delays create. If you opt out of social security, you should save the above percentage of your income for retirement in addition to the 15% you’re saving because you won’t have a social security benefit (or you’ll have a small one). Using myself as an example, I started saving for retirement in my 20s and now that I’m in my 40s I STILL save 10% PLUS 15% because I opted out of social security for a total of 25%.

The best retirement savings plan includes the following:

  1. Invest plenty (see above)

  2. Invest early (see above)

  3. Save consistently (Part 2)

  4. Save in a tax-advantaged way (Part 2)

  5. Invest in the right assets (Part 3)

  6. Have a paid for house by the time you retire (Part 4)

When you look at what percentage I recommend above, it may seem daunting. It may seem unimaginable. That’s ok. Don’t be overwhelmed. Instead, be concerned enough to take action. Can you start saving $25 per month and increase that over time?

Next up: What instrument/bucket to save in.