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For many, retirement income planning is the culmination of a series of decisions that amount to the largest financial commitment ever made in life. This commitment may require that you save hundreds of thousands of dollars through the full course of your working years – for any hopes of a comfortable retirement.

Retirement Goals

An effective retirement plan begins with clear goal setting. Your retirement lifestyle might include enjoying daily walks on a South Florida beach, eighteen holes of golf, and one fresh batch of baked cookies with your grandchildren. Visualizing these goals will frame the timeline and total costs for your Golden Years.

Retirement Calculators

A retirement calculator will project out the amount of savings necessary to meet your goals. A proper retirement calculator will help you to toggle between various interest rate, inflation, and average return scenarios. Be further advised that projections and estimates are not law and must be updated regularly. Mike Tyson says, “everybody has a plan until they get punched in the mouth.”

Risks Versus Rewards

Dollar-cost-averaging into a diversified portfolio will help you to stay the course through market turbulence. Paying yourself first is a euphemism for dollar-cost-averaging, when you commit to investing a set amount of dollars every month, as if you were paying a bill. All brokerages will allow you to systematically fund accounts via ACH.

A diversified portfolio may include cash, bonds, stocks, and even real estate. This mix of assets should become more conservative as you approach retirement.

Certificates of deposit (CDs) and bonds are fixed income securities that pay interest and are far less volatile than stock market returns. Stocks represent ownership and are highly correlated to corporate profitability. Stocks, of course, are the most effective investments to counter inflationary risks.

Retirement Accounts

All retirement accounts allow for tax deferred growth. 401(k) and Traditional IRAs lower your current taxable income, while Roth IRAs allow for tax-free withdrawals. For 2022, you may contribute $6,000 total into all IRAs and $20,500 into your 401(k).