It's tricky to figure out how much you need to save each month to be financially secure when you retire. According to Motley Fool, the majority of Americans do not even know how much they need to retire, let alone how much they need to gradually save to reach that magical number.
Some assume that social security benefits are enough to make a living, but they are not. In short, social security benefits should only replace about 40 percent of the income you earned before you retire. This means that your retirement account should account for at least the remaining 60 percent.
Social Security Cards with Cash and Benefit Numbers
Many people follow the so-called 4% rule. The 4 percent rule states that you should only deduct 4 percent of your retirement pension investment in your first year of retirement.
After this first year, the amount you deduct can be increased to keep up with the inflation rate. Ideally, you should probably take less than 4 percent off, but this is a good estimate of the ballpark.
These calculations are based on the assumption that people save the same amount every year and do not increase the amount each year, and that everyone makes a return of 7 percent on their investment.
This graphic is useful for many reasons.
. 1 Helps you to set a realistic savings target.
You do not just have to look at your current life and figure out how much you need to live and how much you can stand to save. You also have to be honest about how much you need to live after you retire, assuming there may be higher medical bills or ambitious travel plans.
Picture of a mature couple using a digital tablet while going through papers at home  The sooner you start an aggressive savings plan, the better off you are of course prepared for your future. It is important to remember that saving money over many years is much easier than making huge savings later in life.
2. Reminds you that a large nest egg generates only a small income.
If you have over $ 600,000 in retirement assets by the time you finish work, this will only be equivalent to an annual income of $ 24,000 (if you comply with the above 4 percent rule).
In 2019, the Motley Fool stated that the average monthly social security benefit was $ 1,461. So, if you have a $ 600,000 balance and are lucky enough to get social security benefits, your monthly household income is just under $ 3,500.
Retirement Bank filled with American coins (iStock)
It goes without saying that most people can and should not save nearly $ 600,000 on their retirement.
. 3 The sooner you save, the better – with no exceptions.
Not shocking. The sooner you retire, the easier it is to save for it without feeling the impact on your monthly budget.
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For example, if you want to earn an annual income of $ 40,000 after retirement, you need to save $ 555 per month if you save $ 30 or $ 3,155 per month when you start saving. re 50.
Couple paying bills online with a laptop and looking very happy – Lifestyle Concepts
If you are somewhere between these age guidelines, then you can count on them to get a good estimate of your savings target.