how much do you need to retire? I’m not interested in dollar amounts (well, not mostly), more in % of current income or some other generalizeable formulaic approach.
Quick and dirty answer: If you’re young, at least 10% of your income. If you’re older and haven’t been saving much, then more like 20% of your income (unless you’re really close to retirement… in which case you should be saving as much as possible to avoid eating catfood!). If your company gives you a 100% match, you should contribute up to that match because in general even if you take the penalty for taking that money out early you will still be ahead. (And of course you shouldn’t be taking the money out early.)
Of course, that’s just the quick and dirty answer. In truth, there are a lot of retirement calculators out there on the internet that will help you get a better answer. Personally I like the ones that give you a range of scenarios… the ones that say, “You have a 70% chance of outliving your income under this scenario” rather than the ones that say “You will need $2.5 million dollars saved.”
All of these calculators are wrong in some way. They all ask for different inputs and all have different assumptions. In reality, the future is uncertain. Things will change. Our salaries and health will increase or decrease with whatever life throws at us. Tax rates will increase, laws will change, public programs will become less generous… It’s hard to know how much money we will really need. (And often we will make do with what we have, so long it’s above a subsistence minimum.)
So if I were to give general advice, I’d say to play around with those retirement calculators. Put in money up to your employer match, and more if you can. Max out your IRAs if you can. Save at least 20% of your income in retirement accounts if you make a middle-class salary. Max out your tax-deferred savings if you’re a member of the 5% (or 1%), even if that is more than 20%– that will give you more freedom later if your options change. If you’re poor, government contributions replace more of your income, so feeding your kids a healthy diet today may be more important than being able to eat fancier food in retirement… in that scenario you would want to do your best to hit the employer match if you are lucky enough to have one.
Who has better advice for Bogart?