How Much Should I Save for Retirement?

By Preserve Gold Research

If you dream of retiring comfortably one day, relying on the wealth you’ve built through your life’s hard work, you need to calculate your savings correctly. “How much should I save for retirement?” is a question we all ask, and the answer is not as simple as throwing out an arbitrary number. You need to consider many factors, like your lifestyle preferences, retirement income sources, and investment strategy, to create a personalized retirement plan for success.

A well-thought-out strategy helps you work toward financial security. Below, we discuss the top considerations and calculations you need to factor in when determining your retirement savings and investment strategy.

Your Savings Benchmarks by Age

For a comprehensive retirement plan, you cannot simply follow average savings guidelines, the replacement ratio, or strategies your peers employ, as every person has unique financial conditions. Still, retirement savings benchmarks can give you a rough idea of where to start when defining your personal strategy.

The benchmarks below depict goals you might have during each decade and what your target savings may be. For example, in your 30s, you may want to add more to your savings account as you begin generating more wealth. If you’re making $150,000 annually, you may have a target of accumulating $150,000 in this period.

To reach the retirement savings rate below, Fidelity recommends saving 15% of your gross salary.

Age General Goal Target savings
20s Building foundational habits 0.5x your annual salary
30s Accelerating savings as your income grows 1x your annual salary
40s Catching up on your savings strategies 3x your annual salary
50s and beyond Finalizing your retirement funds 6-8x your annual salary

When Should You Retire? Timing Matters.

Your retirement timing impacts your savings needs. If you intend to retire at age 50, you will, of course, need more savings than if you wish to retire by 65, as you’ll need funds for those additional 15 years.

When you should retire ultimately depends on your personal lifestyle preferences, career trajectory, life expectancy projections, and health. Social Security’s retirement age for full benefits is over 66 years old, with early retirement benefits beginning at 62. Most retirement accounts, like an IRA, can be cashed out after age 59.5 without penalty.

Just because you face these age restrictions does not mean you have to retire at 59 or 66. Many people choose to retire early based on their career, health, lifestyle, or when they have adequate savings.

“How much should I save for retirement?” You’ll need to choose a goal retirement age based on the above factors to calculate your retirement savings adequately.

Going Beyond the Averages: Estimating Your Future Expenses for a Comfortable Retirement

Calculating Expenses In Retirement

Once you’ve determined when you’d like to retire and looked at the retirement calculator above, you should have a rough figure in mind for how much you need to save. Now, you need to start fine-tuning that number based on your personal spending habits. We recommend considering the following factors:

  • Housing costs: Will you continue living in your same home, or do you plan on downsizing? Will you own your home by retirement, or will you still have a mortgage payment?
  • Healthcare needs: You cannot predict your future healthcare costs, but you can consider your current needs and how they might change in the future.
  • Leisure and lifestyle preferences: Think about your lifestyle purchases and how they might increase or decrease once you retire. Will you pick up new hobbies or change your spending habits?
  • Inflation: The cost of living will continue to rise by the time you retire, so you must save accordingly.
  • Unexpected costs: You should add cushion funds to your retirement so you’re prepared to handle unpredictable expenses.

How Potential Income Resources Factor Into Your Retirement Savings Calculation

When calculating “How much should I save for retirement?” not only do you need to consider your personal spending habits, but you also need to think about your supplemental income sources. Odds are, you won’t need to 100% rely on your savings. Consider which of these income sources you’ll have in addition to your savings to calculate your finances accordingly:

  • Social Security benefits
  • Income from rental properties
  • Part-time or freelance work income

Diversifying your income sources can help financial stability. A steady paycheck can also give you more flexibility in your lifestyle, helping your savings stretch further.

The Power of Investing for Retirement

Jar With Coins

Once you know the answer to “How much should I save for retirement?” the next natural question to ask is, “How should I save?”

If you let your retirement savings sit in a bank account, the money will likely lose value over time as the U.S. dollar falls subject to inflation. By investing your retirement savings, you can ideally generate additional earnings to match or exceed the rate of inflation, multiplying your savings simply by choosing the right accounts for your money to sit in.

You have plenty of options for retirement investing. Goals will likely be something with low volatility, minimal risks, and compounding growth.

Stocks are a popular option as they can boast relatively high returns, with the S&P 500 Index, for example, averaging around 10% per year. Bonds provide more security than stocks as they come with a credit rating. Mutual funds can include bonds, stocks, and more in one bucket so investors can purchase cheap shares.

These traditional investment vehicles can act as valuable retirement tools, but only if you choose the right account, as many stocks, bonds, and mutual funds come with high risks and volatility.

Why Consider Precious Metals in Your Retirement Portfolio?

If looking to invest in something without counterparty risks, one may consider precious metals instead. By funding an IRA with precious metals, you’re selecting a physical commodity with historically minimal volatility and high stability rates. Precious metals allow you to hedge against market crashes while future-proofing your savings by protecting against inflation.

Gold  has been historically considered a “safe-haven” asset because it tends to perform well during periods of economic uncertainty. Thus, your retirement savings should not plummet even if the market does. Gold boasts an average return of around 8% over the last 50 years, but this rate has grown in the last five years as the U.S. dollar has fallen.

Precious metals are physical commodities that are always in high demand from various sectors, including the renewable energy sphere, automotive manufacturing, electronics, jewelry, and central bank buying. The limited supply of these raw metals combined with growing demand rates equates to reliable price growth for the foreseeable future.

Looking at the Role of Gold, Silver, Platinum, and Palladium

The IRS allows you to fund your IRA with various precious metals as long as they meet the required purity and certifications, so how do these precious metals compare?

  • Gold: Gold carries the esteem of being a strong investment vehicle, so central banks and governing bodies purchase in bulk during times of economic uncertainty. Gold is also central to many cultures like China and India, which are typically the two top buyers in the world. Because of these unique demand factors and its rarity, gold comes at a high price point of over $2,600 per ounce but carries this value well.
  • Silver: Silver holds high thermal and electrical conductivity, making it invaluable for batteries, solar panels, and other electronics. Silver prices can be more volatile, though, as it is not as rare and highly influenced by supply and demand. The metal offers a more accessible price point, typically selling in the $20 to $30-per-ounce range.
  • Platinum: Platinum is far rarer than gold and is also highly valuable in industrial applications because of its corrosion resistance and high melting point. The metal is often used in catalytic converters, so its upper $900-per-ounce pricing can depend on trends in the automotive industry.
  • Palladium: Palladium is similar to platinum in many ways. Many investors once chose this metal for its lower price point, but now, its pricing is around the same range.

The 4% Rule: A Guideline for Sustainable Withdrawals

Investment Concept

When asking, “How much should I save for retirement?” you also need to consider how you’ll use your savings to ensure sustainable annual withdrawals.

The 4% rule is a guideline that recommends withdrawing 4% of your savings in the first year you retire, then adjusting for inflation each year after that for the next 30 years. While you can keep this rule in mind when cashing out investments or retirement accounts, you must remain adaptable based on market performance.

Crafting a Personal Plan for Retirement Success

As you’re creating your personal retirement plan and answering “How much should I save for retirement?” be sure to consider your future goals, retirement income needs, investment strategy and returns, and expenses. We recommend consulting with a financial advisor for continual financial adjustments and re-evaluation to ensure your investment decisions and contribution amounts still align with your needs.

If you want to diversify your retirement portfolio with a precious metals IRA, call Preserve Gold today at (877) 444-0923 to learn more.

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