If you open up any article on saving for retirement, you’ll read that the standard advice is to save 10-15% of your income. Admittedly, that’s what I was doing for a long time. But if you follow that advice, you can bet that you’ll be working well into your mid-late 60’s and likely will be stressed out that you might not have enough to last you through retirement.
That’s also the best case scenario if you start saving that amount when you are 25, which let’s be honest, most people aren’t starting that young.
Sadly, my generation (hello millennials), will not be able to count on receiving social security by the time that we retire, so it’s really up to us to take control and make sure that we are setting ourselves up well for the future.
Let’s run some numbers and see what that savings rate will tell us about how long you can expect to be working (using a hypothetical annual income of $70k).
Saving 10%
You’ll see from the chart, that if you save 10% of your salary, with the assumptions that you receive a 7% return, you can expect to be working for just shy of 42 years. So if you started when you were say, 28 years old, you could look at retiring at the ripe old age of 69!
Not sure about you, but that is a LONG time. I’d rather be doing other things like traveling, enjoying my family and spending time with friends, than working my ass off until I’m nearly 70.
I have no idea what my energy levels or where my health will be at when I’m approaching 70, but I sure wouldn’t want the added stress of having to work to make ends meet if either of those things were declining.
Let’s run some other numbers to see what this could look like if we upped our savings.
Saving 30%
Wow! So by increasing your savings rate to 30%, you can see how much of a difference that makes to your working life. Using the same assumptions as above, you can expect to be working for just 24 years. So that same 28 year old, could now look at retiring at the age of 52.
That sounds a hell of a lot better than just shy of 70 years old. At 52, your kids might be heading off to college, and you could be embarking on your own adventures.
Ok now let’s get crazy. Let’s look at what would happen if we saved 50%.
Saving 50%
What a difference that makes! By saving and investing 50% of your income, you can cut your working years down to a 15 year career. The 28 year old who bucks the generic advice and decides to save 50%, would be able to retire at the age of 43. That’s almost unheard of.
I know it seems like an impossible task, but it is possible. I have followed along and been inspired by this 28-year old who did it, or this guy here.
As you can see, the amount that each of us saves is personal. It depends on a number of factors, including being clear about what your goals are and how long you plan to work for. I would encourage you to evaluate what number is right for you and play around with the numbers for yourself.
Here’s a link to the resources I used for these calculations.
Go forth and calculate!
