When it comes to retirement, there is no easy way to figure out how much you’re going to need to save. It seems that every person/business has their own formula to give you the magic number. It also seems that no matter what, nobody is ever saving enough.
One company says you need at least a million, another says two million, and some are saying a certain multiple of your final annual salary. While experts try and come up with the most accurate formula to help people determine how much money they’ll need, more and more people become confused about what that number should be.
While these formulas can kind of help simplify the process of planning for retirement for people that are closer to retirement, I think they can be misleading to people in my generation that have 30 to 50 years until retirement. There are way too many variables that factor into such a number. For example, how do I know what my final annual salary will be? I don’t even know what my final career will be.
Also, how can I know what health care will look like in 40 years? There are bound to be changes to the costs and coverage in the upcoming years. Also, how will Social Security change in the coming years? How will retirement accounts and tax rules change?
There’s just too many variables that even using a more advanced projection tool would probably be more of a guess than anything. But this doesn’t mean I should stop saving or should try and nail down the magic number. It only means that I need to save as much as I can, when I can.
I’ve been saving for retirement since I graduated and started working, but I know I’m not saving nearly enough as I should be. I’d save more, but I have a couple other things on my plate right now. Once those things are taken care of, then I plan to save more for retirement. Once I get a bit older, I’ll take another look at those formulas to see how I’m doing. Maybe by then, they’ll have developed a new tool that allows you to see into the future to determine exactly how much you’ll need to save.
Are you worried about your number?