Easy ways to see if your nest is growing appropriately

Are you saving enough for retirement? You know that it’s on you. No one is going to fund your retirement. Well, unless you have a pension where you work. For most of us, it’s on us.

The chart below is a great way to see if you are making appropriate progress.

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This chart allows you to dip your toe in your retirement pool and see if you are on target. The chart looks at your wages and your age. There are various wages across the bottom ($30,000 through $300,000). Select the salary that is closest to your current salary.

The bars are color coded to your age. There is a legend at the top of the bar chart. Find the color which is closest to your age. Then see what number on the left the bar is closest to. Once you have that, multiply your salary by the number on the left side. The total that you come up with is the amount that you should have amassed by now.

As an example, someone earning $75,000 a year who is 45 years old (the purple bar) should have three times their annual salary — or $225,000 — saved to date. If you have at least that much money, the chart suggests that you are well on your way to having enough money to retire in the lifestyle that you have grown accustomed to.

This amount will vary a lot. Someone who earns $250,000 may have a very different lifestyle than someone who earns $150,000 or $50,000.

Are you on target?

Do you have enough money to retire? Are you on target to have enough money to retire comfortably? If you do, great? If not, you really need to make a concerted effort to start saving enough to retire on. Whether or not you have started, if you need to save more, you need to figure out how to reign in your spending to allow yourself to set aside cash to invest for your future

There are various schools of thought regarding how much money you need to retire comfortably. This chart, from J.P. Morgan, suggests that the average American — someone earning about $50,000 needs almost 6 times that salary, or about $300,000, in order to main the same lifestyle.

Don’t wait too long

Start saving as early as you can. The longer you wait before starting, the more you will have to set aside. Conversely, the earlier you start, the less you will have to set aside. Here’s a chart to show you how much of a $50,000 salary you would need to set aside in order to reach your goals.

As you can see, assuming a 7% annual return in your money, a 25 year old earning $50,000 would only need to set aside about $1,400 a year to reach their goal of $300,000 by the time they turn 65 years old. But the longer you wait before you get started, the more money you need to save each year. A 55 year old who hadn’t saved anything yet, would need to set aside well over $20,000 a year for those next ten years until they reach their retirement age so be able to retire and maintain their lifestyle.

The later you start, they lower the chances are that you will reach your goal

The difference in the amount that you have to save to real eye-opening. A 45 year old would need to set aside less than $7,000 a year; that’s about one-third as much as the 55 year old would need to save. Not only would the 55 year old need to save a lot more than those younger, but they likelihood that they could reach their goal is less assured given the shorter time-frame. When you have many years, you can more easily withstand market fluctuations. Markets don’t return a consist amount each year; some years you can earn large return, some years you can suffer large declines. The less time you have to invest, the less likely your returns will be.

Further, as mentioned above, the 55 year old earning about $50,000 would need to set aside more than $20,000 a year to reach their goal of having enough money to retire and maintain their lifestyle. How many people earning $50,000 a year can set aside $20,000? I’d suggest that the answer is close to zero. Remember, that $50,000 is your gross earnings. If you are paying about 20% in takes, your next pay would be about $40,000. That means that a 55 year old who hasn’t started saving for retirement will need to set aside half of the $40,000 that they receive as take-home pay and live on the rest.

Start savings for your retirement as early as you can. Every little bit that you can set aside helps. The longer your money has to grow in the stock market, the better off you will likely be in the long run.

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