How much should be set aside for retirement?
I'm in a high school personal finance class. The book says 10%, but that seems like too little. How much would you set aside for retirement?
Public Comments
- 10% is a nice common *minimum* or starting figure to aim at. And if everyone started putting aside 10% the first year they had a paying job, well, they'd certainly be better off than the average person is right now. Remember that compounding is one of the critical elements in savings for retirement, and so the earlier you start, you are MUCH better off. If you save 10% from age 21 to 65, you'll have a ton more money than someone saving 20% from age 45 to 65.
- It's actually time and money that figures into this. If you saved 10% for retirement from the day you started working until the day you retire, you'd have plenty of money. However most people don't start until their 30's and 40s, so they should be looking at 15% and even 20%.
- 10% is probably sufficient if you start before you are 25 years old and make a relatively modest salary. The later you start, the higher percentage you need. And the higher your salary, the higher percentage you need, because Social Security will not make up as big of a fraction of what you need once you retire. Of course, this is sort of a minimal retirement -- if you want to retire earlier or more expensively (like if you plan to travel or take up an expensive hobby) then you would need to save more. Personally, I encourage anyone your age, as soon as you get that first job, to save like crazy. Here's why. First, every $1 you save when you are 25 years old should grow to something like $16 by the time you are 65. But every $1 you save when you are 35 grows to just around $8 by the time you are 65. And by the time you're 45, each dollar grows to just around $4 when you are 65. The dollars you save when you are young have lots of time to grow nicely and really work for you. Second, it is much easier to start out young with very frugal habits, save a lot of money, and then relax as you get older. It is much harder to go the other way! And third, you never know what will happen. If you should lose your job, have a major emergency expense, or something else, you may not be able to contribute to your retirement for a while. So it is nice to be a little ahead there, in case you need a cushion. So, save like crazy when you are young!
