Walk Me Through It

By Kristen Castillo

December 27, 2016 4 min read

When is the ideal time to start saving for retirement? As soon you start working!

"The earlier you start to save for the retirement the better," says Jamie Hopkins, professor of retirement planning at The American College of Financial Services.

How much to save is a personal choice, too, making it tough to calculate across the board.

"One of the biggest misconceptions about retirement planning is that there is a magic savings number that you can get to and be prepared for retirement," says Hopkins, noting as long as individuals start saving early enough, "you don't need to save more than 15 to 18 percent of your salary each year, but even that can be challenging.

"The key here is start early, invest heavily in growth assets like equities and take advantage of tax-advantaged savings vehicles like 401(k)s and IRAs."

*No Surprises

"If you plan through your life, you won't be in for a surprises at retirement," says Robert J. Pyle, a Certified Financial Planner with Diversified Asset Management Inc. By age 35, he says, individuals should have saved one time their salary.

By age 45, they should have saved 3.75 times their salary; by 55, they should have saved 7.5 times their salary.

"By age 65, you should have saved 10 times your salary," Pyle says, detailing, "If you are making $100,000 at age 65 and you have saved one million, then you can safely withdraw four percent or $40,000, which is 40 percent of your pre-retirement salary."

*Don't Wait

The longer a person waits to save for retirement the "harder it becomes to meet your savings goals," says Hopkins.

For example, he says if you only have 20 years to save, you'll want to save 30 percent of your yearly income in an 80 percent stock, 20 percent bonds mix to replace 50 percent of your income in retirement.

Comparatively, if you had 40 years to save, such as a 25-year-old planning to retire at 65, with that 80-20 mix, you'd only have to save between 6 and 8 percent of your income to replace 50 percent in retirement.

*Will You Be Ready? Follow This Retirement Savings Timeline

Financial adviser Dan Cunningham, founder of One Day In July, shares this retirement planning timeline:

--Age 18. "Your best investment is yourself," he says. "Work on your skills."

--Age 22. This is the time to contribute the maximum to your 401(k) or 403(b) plan at work and to invest in your Roth or IRA outside of work.

It's also when you should "learn to control personal spending," says Cunningham. "Money saved now will compound for 60 years or so."

Avoid actively managed mutual funds, he advises. Now is your chance to "learn the importance of index-fund investing and how to stay away from high financial fees."

--Age 30. Look at your savings and realize you'll be 40 before you know it.

"The money you save before age 40 is roughly equal to all you will save, for the rest of your life, after age 40, in terms of compounding returns," says Cunningham. "You have one decade left."

Watch your health, too, cautions Cunningham.

"Keep yourself in good physical shape; it will help reduce your health care bills later, or push them back in time," he says. "Health care is going to be one of your enormous expenses."

--Age 62. Get out your calculator! Cunningham says this is when you should figure out the optimal time to sign up for Social Security.

--Age 70. Even though you're retired, control your spending. "You may well live until your 90s," says Cunningham. "Save your money to give yourself a huge 100th birthday party!"

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