30 somethings: Is your retirement plan actually on track?

There are a lot of questions that begin to arise as you transition from your twenties to your thirties. This is the time when you start thinking about settling down, buying a home and getting serious about saving for retirement. However, is your retirement plan actually on track? Where do you stand financially when it comes to saving for the future?

While these questions can seem overwhelming and complicated, the answers can easily be found by taking a few minutes to do the math. Here’s how to determine if your retirement savings are on track and what to do if they’re not.

Abide by the 4% rule

The most common rule of thumb when it comes to saving for retirement is the 4% Rule. It was developed in the 1990s by a financial planner named William Bengen. The idea is to save up enough money to retire by withdrawing at a rate of 4% per year from your investments without running out of funds.

In other words, you want to build up a nest egg that allows you to withdraw 4% of the interest you earn without touching much of the principal. The average rate of return for investments in the U.S. stock market for the past few years has been between 5-7%. So it’s safe to say that you should be able to out earn the 4% rule withdrawal rate during retirement.

For example, if you currently live on a salary of $50,000 per year, and want to do the same in your retirement years, you’ll need to save up around $1.2 million. The equation for the 4% rule works out like this: $1,200,000 x 0.04 = $48,000 annual withdrawal rate. This doesn’t include any income from additional sources such as Social Security benefits or a pension.

The 4% rule gives a quick-and-dirty baseline for retirement savings that allows you to withdraw your regular salary without touching too much of your principal balance. Keep in mind though that while this rule is best for individuals who are hoping to retire in the next few years, it’s still a good barometer for individuals in their thirties.

Check in every 10 years

Another way of knowing if your retirement planning is actually on track it to check in with your current savings goals every ten years. According to Charles Farrell, the financial planner who wrote the book Your Money Ratios, if you expect to retire around the age of 65 there are specific saving milestones you should reach.

He states that an individual who’s 35 should have at least 1.4 times of their annual income saved up, at age 45 around 3.7 times their annual salary and by age 55 have 7.1 times tucked away for retirement. This is a great way to gauge whether or not you’re on track and how much you need to increase your retirement savings if necessary.

Use a retirement calculator

If you want to see the exact numbers of your retirement savings broken down even further, a retirement calculator is a smart tool to use. CNN Money has a savings calculator that will estimate how much your savings will be, based on what you have saved and your estimated savings in the future.

Another more in-depth retirement calculator comes from SmartAsset.com. This one takes into account more details such as where you live, your Social Security benefits and what you expect your annual expenses to be. Either one of these retirement calculators will help you get a clear picture of whether or not your retirement plan is actually on track.

Consider other income options

Finally, don’t forget that there may other income options that come into play when estimating your retirement savings goals. For many of us income sources like Social Security are still an option. This link provides the possible benefits you could be eligible to receive from Social Security in the future.

Other income considerations may include participation in pension programs as well as any other investments or passive income streams you expect to receive. While not all of these income options are guaranteed, you may be able to rely on a few of them to help build your financial portfolio during retirement age.

Is your retirement on track?

As a thirty-something it’s important to fully understand if your retirement plan is actually on track. By using these simple rules-of-thumb and savings calculators you will be able to accurately deduce what your finances will look like during retirement. If you find that you’re a bit behind, you can estimate how much more you need to save every month and then start taking steps to reduce this gap.


Post by Self Lender

Self Lender helps thousands of people build a strong financial future. Featured in Bloomberg, Newsweek, TechCrunch, and more. Discover us at selflender.com.

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