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If you’re hoping to find out about your desired retirement number, try multiplying your final salary by 10. Here’s how to make this technique work for you. [[{“value”:”
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Deciding the amount you should save for retirement is really important. Social Security only replaces 40% of pre-retirement income and is supposed to work in conjunction with savings and pension funds to replace about 80% of your pre-retirement salary.
You’ll want to be sure you have plenty of money in your brokerage account to provide the support you need. But how can you figure out exactly what amount you will require? Here’s a pretty simple way to do that.
This simple rule of thumb will help you estimate your retirement savings amount
One of the simplest, quickest ways to estimate the amount you’ll need for retirement is to simply estimate what your final salary will be and multiply it by 10. So, if you estimate that you’ll be making $100,000 by the time you retire, then your goal should be to have about $1 million in your 401(k), IRA, or other retirement account.
Now, if you’re pretty near to retiring, it shouldn’t be too difficult to figure this out. Let’s say you’re making that $100,000 right now and are going to retire next year. You could just multiply 10 times $100,000 to arrive at your $1 million number, because it’s unlikely your salary is going to change much in the next year.
Assuming you got about 40% of $100,000 from Social Security, your benefits would give you $40,000. And your $1 million nest egg would provide an income of about $40,000 if you followed the 4% rule and took out 4% of your account balance in the first year. The 4% rule is another financial rule of thumb that says to withdraw 4% from your retirement accounts in your first year out of work and increase the amount by inflation each year.
You’d have about an $80,000 income with Social Security and your investments combined — so right around that 80% of pre-retirement income experts say you’ll require.
If you’re a long way from retirement, though, you’ll need to figure out what 10 times your future salary will be– not 10 times what you’re making now. Ideally, your earnings are likely to go up by then, and you could fall short if you base retirement savings on your current salary.
How to estimate your final salary
If you want to make sure you’re being accurate in your retirement calculations, you’ll have to estimate what your final salary will be. One way to do that is to determine how many years it is until you’ll likely retire and then assume a 3% raise each year until then (that’s the amount most employers offer workers each year).
So, say you’re 10 years away from retirement and currently making $50,000. Here’s what this could look like.
Based on this table, you would need around $652,387 to have enough for your retirement. You can work on saving that much by using the savings calculator at Investor.gov, which will tell you how much to contribute to your investment accounts based on your timeline and savings goals.
This method of figuring out how much to save for retirement is about as easy as it gets. Try it today to find your target number and see if you’re saving enough to reach it.
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