How Much Should I Invest: Rules of Thumb vs. Reality - By Chris Cushman
Many people wonder how much they need to be saving and investing for their future needs. The internet is full of various opinions. Do these opinions match reality? How do these rules of thumb apply to you? 1. Amount – (RULE) Invest 10-15% of your income for retirement. (REALITY) There are too many different personal situations for a rule of thumb to be reliable. Answers depend on age, asset level, estimated Retirement date, health, rate of return, etc. People who start in their 20's and early 30's will often have enough when they save 10-15% (given many other assumptions.) The best route is to actually calculate your personal number. The most important point to remember is that you’re saving for a future potential need and needs should usurp current wants if you desire a stable future. 2. Location – (RULE) Focus on retirement plans at work and open an IRA. (REALITY) Any available plan at work is a great place to start, especially if you getting a match from your employer. Never leave this free money on the table! Take advantage of this as much as you can. IRA’s and Roth IRA’s are also great ways to save. A regular investment account can have some advantages. A vast majority of your investing success will come from how much you contribute and how you invest. If you’re more likely to start with the easiest place, then many people will choose their work plan. The biggest key is getting started ASAP so you can contribute often and systematically. 3. Excuses – (RULE) Don’t wait to get started, even if you have other goals. (REALITY) This is generally true of folks who have full time employment and are done with their education. There are some valid reasons to wait, but many that aren’t valid. People might have goals like buying a house, having children or just enjoying their youth, but goals like this will exist throughout your working years. Other lifestyle choices might need to be reduced for you to save, invest, and reach your goals concurrently. It’s not easy to say no to some desires, but a minimum (non-lavish) retirement at a late age will probably be a need, since people are living longer and longer. Don’t ignore the things you need in the future to spend money on today’s desires. How much do you need to save for your retirement? Call us soon and we’ll help bring clarity to your future!