Experts Weigh In on How Much to Save for Retirement
When it comes to saving for retirement, how much is enough? This is a question that many Americans grapple with as they plan for their future financial security. Recently, “Shark Tank” investor Kevin O’Leary weighed in on this topic during an appearance on ABC News. A viewer asked O’Leary what percentage of their salary should be invested in a 401(k), considering their other living expenses.
Without hesitation, O’Leary responded, “The number is 15% – and yes you can, by stopping buying all that crap you don’t need. You have to adjust your lifestyle to make sure you put 15% away.”
But how accurate is O’Leary’s recommendation? Experts have weighed in on the matter, and they offer some valuable insights.
According to certified financial planner Matt Bacon at Carmichael Hill & Associates, saving between 10% and 20% of income works for most people. However, he emphasizes that it’s not a one-size-fits-all approach. The older you are, the more you’ll want to save. Julia Lilly, a certified financial planner at Ryerson Financial, suggests targeting a 20% savings rate in your 30s and increasing it as your income grows in your 40s and 50s.
Experts also advise erring on the side of saving more rather than less. Bobbi Rebell, a certified financial planner and founder of Financial Wellness Strategies, suggests aiming for specific dollar limits on contributions. In 2023, the limit is $22,500 and increases to $30,000 for individuals over age 50. If you can’t reach these limits, the 15% recommended by O’Leary is still a good target.
But what if you feel you can’t save enough for retirement? Experts offer some strategies to help individuals get started and gradually increase their savings. Certified financial planner Andrea Clark advises starting small, even if it’s just 1%, as any amount is better than nothing. Bruce Primeau, a certified financial planner at Summit Wealth Advocates, suggests starting at a lower percentage and increasing the savings rate over time as salary increases occur.
Another important point is to take advantage of employer matching contributions. Certified financial planner Alonso Rodriguez Segarra at Advise Financial emphasizes the importance of saving at least up to the amount the employer will match, as this is essentially free money.
While saving for retirement is crucial, experts also caution against neglecting other financial obligations. Debt with interest rates over 10% should not be ignored, according to Clark. And Joe Favorito, a certified financial planner at Landmark Wealth Management, warns against investing too much from salary if it means neglecting monthly bills or credit card debt.
To reach the recommended savings goals, experts suggest cutting unnecessary expenses and managing budgets effectively. Favorito advises cutting out waste and creating a written budget to identify unnecessary spending. Clark recommends reviewing bank and credit card statements quarterly to identify areas where expenses can be reduced and redirected towards retirement savings.
Automating contributions can make saving for retirement easier. Many retirement plans allow automatic increases in the percentage of income contributed. By incrementally increasing contributions over time, individuals can gradually reach the 15% benchmark suggested by O’Leary.
Finally, experts emphasize the importance of starting early and taking advantage of the power of compounding. By saving and investing consistently over time, individuals can maximize the growth of their retirement savings. Even small monthly contributions can yield significant returns in the long run.
In conclusion, while the percentage of income to save for retirement may vary from person to person, experts largely agree that saving between 10% and 20% is a good goal. By adjusting lifestyles, starting small, taking advantage of employer matching contributions, managing expenses, and starting early, individuals can work towards a secure retirement future.