How to Fund for Retirement?

You’ve estimated what you may need to fund your days at Shady Pines. Now, how exactly do you do it? Well, there’s another rule of thumb to fall back on.

The 15 percent rule

Getting to your retirement goals may be as easy as investing 15 percent of each paycheck, according to research from Fidelity. Saving 15 percent will position most of us to have around 70 percent of our income when added to Social Security.

This, of course, relies on a couple of assumptions—namely, that you start investing at 25. While that’s not possible for all of us—surveys have found the average age that Americans actually start investing for retirement is 31—a later start means bumping up that contribution percentage some. If you wait a decade, you’ll probably want to shoot for 20 to 25 percent.

If those percentages seem daunting, remember that even small amounts add up over time. A 1 percent increase in your 20s could add up to a 3 percent greater retirement fund, according to Fidelity’s research. And luckily, when it comes to paying for retirement, you aren’t in it alone. You’ll be relying on some of your own savings, yes, but you can also factor in Social Security payments.

Social Security

Portions of each of your paychecks go to fund Social Security, and when it comes time for you to retire, the Social Security Administration calculates what value you will receive based on your earnings history and your retirement age. While you can start receiving Social Security benefits at 62, they’re slightly prorated unless you wait to start taking them until 67 for those born after 1960.

Your exact payment will vary year to year based on cost-of-living adjustments and the average amount you earned during the 35 years you made the most money. Individual calculations can get tricky, but the Social Security Administration offers benefits estimators to help you figure out how much you might get.

For reference, the average estimated benefit in 2020 is $1,503 a month, though high earners who file to get benefits at age 66 might get up to $3,011 a month. Someone earning an average of $50,000 might receive between $1,289 and $2,276 a month, depending on when they started taking Social Security payments.

Keep in mind that while Social Security benefits can lessen the amount you need to save for retirement on your own, you probably do not want to rely on them entirely.

(This article written by: John Schmidt)

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