Though undesirable, it is a fact that several Americans aren’t well-prepared for the future regarding their savings.
The average amount of retirement savings for the working-age families in America is just around $5,000 and about 35% of American adults have only a few hundred dollars in their savings account. Lastly, about 34 percent have zero.
This is quite alarming as the value is a whole lot less than what you need. At age 45, financial gurus recommend that you have at least four times your annual salary in the bank if you are planning to retire at age 67 and continue living the lifestyle you are used to.
The ideal amount of savings at 40 should be three times your salary and about double when you reach 35. We understand that it is quite a huge amount. Just how are you going to save that much?
The experts suggest that you save as much as you can, and as early as you can. It’s best to put away about 15 percent of your income starting age 25 and invest more than half of your savings in your lifetime.
There are about three factors that determine if you are ready for retirement and these are the amount, asset allocation, and account. To save 15 percent of your income, you should invest as well. The most convenient way to do this is to sign for the 401k plan from your employer and take advantage of any company match, which will essentially give you free money.
Whether you get a 401(k) or not, you still contribute to a traditional IRA or Roth IRA which are similar individual retirement accounts that provide tax benefits.
Additionally, it’s ideal to make a diversified portfolio. Its purpose is to make the most out of the economic cycles since some asset classes perform better than others, and vice versa.
As the market rises and falls over the years, a combination of different investments will keep you on top of what’s happening around, and you won’t be at the mercy of one specific stock.
Saving at least four times of your annual income at the age of 45 is an ideal scenario. Whether you are planning to buy a home or have kids, this is an ideal situation. Even if you invest it, you are still going to be in the perfect ballpark.
How much savings you’ll want to have for retirement will ultimately depend on the lifestyle that you want to maintain. Are you planning to travel? Go back to school? Or pursue a hobby? Having the right amount of savings will give people the confidence that they can maintain and live their desired lifestyle and make sure that they won’t run out of money.