Are You Saving Enough?

The one advice that people often receive from parents, grandparents, mentors, and even bosses, is to save money. It is also something that we unconsciously advise people around us to follow. But, even though saving money is considered to be a universal rule, nobody really talks about how much one should save. In this ever-changing world, how can one account for the future? How can you be sure that your savings will never run out, and how do you know you are saving enough? Let’s find out. 

Saving for Retirement

There is no specific formula to calculate a definitive amount. Although it is recommended that you save the equivalent of at least 80% of your current income for the future, the reality is that everyone’s day-to-day requirements, lifestyle, family situation, health expenses, etc.are different.

8 Most essential Guidelines for a Wiser Saving

1. Use a calculator

The simplest way to know if you are on the right track is to use a calculator. You can calculate how much you should be saving for retirement and how long it will take for you to achieve your goal. These calculators may not be absolutely accurate for what the future holds, as they largely depend on the information or assumptions that you provide. But they can serve as a useful guide map for how to plan for your retirement. They also point you in the right direction.

2. Stick to a Percentage and not a Number

The popular concept of saving $1 million before you hit a particular age can be demoralizing if you are unable to save as much. Even if you manage to save up, it can still affect your plans by making you complacent. Numbers and their values will change every few years due to external factors like inflation, market downturns, etc. It can also be difficult to achieve these numbers because your income, too, will keep changing through the years. What helps instead, is to have a percentage. It is more achievable and balanced and can be incorporated into your financial plans regardless of how much you earn. You can pick a percentage and keep altering it as and when you see fit. This will also bring discipline into your savings routine.

3. Analyze your family history

Genes can play an important role in life. Assuming that most people retire at the age of 60, you may have 20-30 years of life ahead of you. Keep in mind the age your grandparents passed away, or the current ages of your parents and their health history. This can help you think of a realistic future for yourself. As of 2015, there were 72,000 centenarians in the United States. If your family has a history of centenarians, it’s good to plan and save for 40-45 years of retirement life. Another point to note is your family’s history of illnesses. For example, if you have a history of Alzheimer’s or an illness that may require round-the-clock care, you should save more to cover the medical costs of home care. 

4. Account for Social Security

It would not be wise to depend on Social Security completely, but it does take the load off your shoulders. Social Security, along with Medicare, can prove to be a good support system when you are old. When you buy an insurance policy or save up for probable health costs, think of these benefits too.

5. Think of your savings as a replacement for income

Understanding how much is enough can be difficult. One way to arrive at a conclusion is to simply think of your savings as a replacement for your income. Barring a few changes, your expenses are not likely to alter a lot if you are not working anymore. The daily commute to the office and lunch breaks can be replaced with visiting your children or grandchildren and the cost of medicines. But your net expenses will more or less stay the same or show a marginal difference. To arrive at a comprehensive savings goal, you should calculate your current costs and draw out a conclusion for what you might need in the future.

6. Include a margin for inflation

While thinking of your savings as a replacement to your income, you must also keep inflation in mind. The annual inflation rate was recorded at 1.7% for 12 months in September 2019. Your income may be sufficient to cover the costs of things today. But it may not be the same 10, 20 or 30 years from now. You should never forget to keep a margin for inflation. Here’s a calculator to help you.

7. Add your spouse’s savings too

If you are married, then you can share the costs of your expenses with your spouse. Married couples should think of their combined expenses and requirements, and then fix their goals. If both the partners are earning, they may find it easier to create a larger savings pool. On the other hand, if one spouse is saving for two people or supporting the children, the burden can be a bit overwhelming.
But one should be careful in ascertaining their future goals and requirements. In the unlikely event of a divorce, it can be emotionally, legally, and financially stressful to sort things between couples.

8. Don’t forget taxes

Depending on the type of account you invest your money in, you may be obligated to pay tax on your withdrawals later. There are different tax policies in different states. Be mindful of these factors when you save your money. You should also pick a state to settle down in, based on the taxation rules there. 

To sum it up

Since there is no magic number, you can never be satisfied if you have indeed saved enough. Moreover, the dynamic nature of life and the world around can make it hard for you to pick a figure and stick to it. But these basic guides ensure that you stay focused and in tune with your goals. There is no generic rule for saving, just a combination of things that works for most people. 

Do you need help in devising a savings plan? Reach out to financial advisors for a saving strategy that will help you meet your retirement goals.