How to Set a Realistic Retirement Savings Goal

Thursday, February 22, 2018, 6:00 PM | Leave Comment

Saving for retirement would be intimidating, even without the fact that you’ll likely need to save somewhere in the ballpark of $1 million in order to ensure comfort and a peace of mind.

The thing with goals in general is not traveling too far into the future; usually, a more productive option would be setting short-term savings goals, because they allow you more insight into your progress and give you a more down-to-earth picture of your wealth accumulation.

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Featured image; Source: Pexels

  • The retirement savings type

    This will probably sound contradictory, but the first step towards realistic retirement savings goal setting is related to long-term decision making.

    At its very foundation, retirement is something that is going to happen many years from now; this is why you need to decide what type of retirement savings you are going to opt for: are you planning on living in a family house, is settling down somewhere on the shore more up your alley, or are you up for a luxury retirement; moving someplace warm, sunny and remote? This should be the very essence of your financial plans.

  • Aim short-term, but be specific

    Once you’ve chosen your retirement type, you need to focus on setting aside a particular amount towards the end of every month.

    Large numbers can be really intimidating, once in your mid-to-late-20s; thinking in shorter terms is much more preferable at this point in life. This is also smart because if you happen to experience a solid investment return during your career, you can kick back and let compound interest do all the dirty work.

    Setting a semi-annual-to-annual goal is great because you can start with a relatively small amount and aim to increase it, come every due date. Save up little by little, and it will accumulate an amount that’s even going to impress you, provided that you give it time.

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    Image 2; Source: Pexels

  • Salary percentage

    Many people make the mistake of setting aside a particular amount of money from their salary to go to their savings account.

    Instead of going with a fixed amount, it is much smarter to go with the proportion of your income – as your paychecks grow, so will your retirement savings.

    However, despite the fact that most people still go for the percentage rather than the amount, this number generally revolves around 3%, which isn’t enough, no matter what kind of a retirement life you’re considering.

    Whenever possible, aim towards saving up 10 to 15% of your income. This being said, jumping from 3% all the way to 10 or 15% will seriously impact your lifestyle and will seem impossible. This is why starting with the mentioned 3% and working your way up towards 10% should be done gradually; for example, up the percentage by 2% each year.

  • Get a match

    Once your boss offers you a 401(k) match, you should aim to save enough money to get the full company contribution, at the very least.

    For instance, if your employer provides 30 cents on each dollar saved in the 401(k), this means that you’ve earned a 30% ROI.

    However, although dollar-for-dollar company contributions can easily have you double your retirement savings, should you happen to make any job changes, this might all go terribly awry. This is why you need to find out exactly how long you need to stay at a particular company before earning the right to keep the 401(k) match should you happen to leave the job.

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    Image 3; Source: Pexels

  • Maximizing the tax break

    It’s in the federal government’s interest that you save money for retirement, which is why they often provide tax incentives that help with savings growth.

    You should maximize every single type of tax-deferred or retirement account, whenever possible. In fact, if you contribute after-tax dollars to a Roth IRA, you can make sure that you receive tax-free income once you retire. Nail the Roth, and you won’t have to pay any taxes on it during your retirement!

Retirement saving starts with choosing your preferred retirement type, but this is where long-term goals should end, at least for the time being. Focus on monthly, semi-annual, or annual savings calculation, aim at setting aside at least 10% of your salary on your retirement savings, careful with your 401(k) match, and try and maximize the tax break whenever possible.

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