Share
Check the background of investment professionals associated with this site on FINRA's BrokerCheck.
You might have an idealistic vision of retirement — an idyllic time in the future when you can live your best life, with extra free time on your hands. But how are you pursuing that vision? Social Security might be around when you retire, but the benefit that you get from Uncle Sam might not provide enough income for your retirement years.
But there's good news: thanks to an abundance of new tools and resources, retirement planning is easier than it used to be. Here are some basic steps to get you started.
Determine Your Retirement Income Needs
It's common to discuss desired annual retirement income as a percentage of your current income. Depending on who you're consulting, that percentage could be anywhere from 60% to 90% or even more. The appeal of this approach lies in its simplicity. The problem, however, is that it doesn't account for your specific situation. To determine your specific needs, estimate your annual retirement expenses.
Use your current expenses as a starting point but note that your expenses may change dramatically by the time you retire. If you're nearing retirement, the gap between your current expenses and your retirement expenses may be small. If retirement is many years away, the gap may be significant, and projecting your future expenses may be more difficult.
Remember to take inflation into account. The average annual rate of inflation over the past 20 years has been approximately 2%.1 And keep in mind that your annual expenses may fluctuate throughout retirement. For instance, if you own a home and are paying a mortgage, your expenses will drop if the mortgage is paid off by the time you retire. Other expenses, such as health-related expenses, may increase in your later retirement years. A realistic estimate of your expenses will tell you about how much yearly income you'll need to live comfortably.
How Much Should You Save?
A general rule of thumb for how much you should save is 10 times your annual salary by age 67. Refer to these benchmarks to help keep you on track:
- Age 30: Have the equivalent of one times your salary saved
- Age 35: Have two times your salary saved
- Age 40: Have three times your salary saved
- Age 45: Have four times your salary saved
- Age 50: Have six times your salary saved
- Age 55: Have seven times your salary saved
- Age 60: Have eight times your salary saved
- Age 67: Have 10 times your salary saved
Calculate Retirement Savings Gap
By the time you retire, you'll need a nest egg that will provide you with enough income to fill the gap left by your other income sources. But exactly how much is enough? The following questions may help you find the answer:
At what age do you plan to retire?
The younger you retire, the longer your retirement will be, and the more money you'll need to carry you through it.
What is your life expectancy?
The longer you live, the more years of retirement you'll have to fund.
What rate of growth do you expect from your retirement savings?
Be conservative when projecting rates of return.
Build Your Retirement Fund: Save, Save, Save
When you know roughly how much money you'll need, your next goal is to save that amount. Assume a conservative rate of return (e.g., 5% to 6%), and then determine approximately how much you'll need to save every year between now and your retirement to reach your goal.
The next step is to put your savings plan into action. It's never too early to get started (ideally, begin saving in your 20s). To the extent possible, you may want to arrange to have certain amounts taken directly from your paycheck and automatically invested in accounts of your choice (e.g., 401(k) plans, payroll deduction savings). This arrangement reduces the risk of impulsive or unwise spending that will threaten your savings plan — out of sight, out of mind. If possible, save more than you think you'll need to provide a cushion.
Talk to a Financial Advisor
Financial advisors with BECU Investment Services are here to help. Our team will take the time to get to know you, understand your goals and plan and implement a financial strategy that's appropriate for you. Set up a complimentary consultation or call 206-439-5720.
1Calculated form Consumer Price Index (CPI-U) data published by the Bureau of Labor Statistics, January 2020.
Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. BECU and BECU Investment Services are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using BECU Investment Services, and may also be employees of BECU. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, BECU or BECU Investment Services. Securities and insurance offered through LPL or its affiliates are:
Your Credit Union (“Financial Institution”) provides referrals to financial professionals of LPL Financial LLC (“LPL”) pursuant to an agreement that allows LPL to pay the Financial Institution for these referrals. This creates an incentive for the Financial Institution to make these referrals, resulting in a conflict of interest. The Financial Institution is not a current client of LPL for brokerage or advisory services.
Please read the LPL Financial Relationship Disclosure more detailed information.
The LPL Financial registered representatives associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.
BECU Investment Services Corporate Office located at BECU, 12770 Gateway Dr., Tukwila, WA 98168. BECU, BECU Investment Services and LPL Financial are separate entities.