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On occasion we field the same general question, usually coming from our super-savers who are “under 45” as a client demographic.
“Am I on track for retirement?”
Because financial planning is personal and unique to each individual/family, the answer to this question is somewhat subjective and varies by household, particularly as we get older and accumulate greater levels of wealth. The rule of thumb is that young savers should aim to set aside 10-15% of household income (per year) to become adequately prepared for a normal retirement life; this also assumes a traditional working time horizon somewhere in to our mid 60’s, of course. As a side note, late savers may need to increase savings to 20% or more.
One goal of our practice is to assist you with benchmarking. In the spirit of IRA season (upcoming April 15 deadline), we’ve compiled a rather basic example of a hypothetical saver, aged 25, who began saving $500 per month through age 65 (41 years). It assumes NO increases in contributions and we illustrated hypothetical rates of return on the investment (ROI) of 6, 8 and 10%.
While some investors may start younger or later in life and experience better returns (or potentially worse), this chart might help someone benchmark their own progress against this example. Today, IRA contributions are capped at $6K per year ($500/mo.) for investors under age 50, so this example is very realistic, if not conservative - - especially for someone who is disciplined about saving the right percentage of their income at an early age. Additionally, if this were a Roth based account, the gains are not subjected to income taxes after age 59.5, so it could be 100% income tax-free!
About the author:
Christopher “v” vonLindenberg is a Board-Certified Financial Planner Professional™ and the CEO/Founder of Lindenberg Financial, Inc.; find us online: www.lindenbergfinancial.com