Trying to conceptualize your retirement years, how long you plan to live, and exactly how much money you will need for all those years ahead, is enough to make anyone's head explode. Sometimes the easiest way to tackle big projects, is to break them down into a bunch of little projects. That is exactly what should be done in the process of planning for retirement...especially in the planning process.
Today, I wanted to share and touch upon an article that I recently came across on Business Insider - trying to figure out how much you should be saving for retirement in every decade of your life. Whoa. It seems really daunting, but it really isn't when you have the ability to break it all down.
One of the first rules of investing is to save early and save often. This is the easiest way to build wealth over time and also to maintain financial security, but namely to take advantage of compound interest. "Paying yourself first" is not something to be taken lightly -- you will most definitely need that money in one form or another in the future more so than you would today.
But what EXACTLY is the correct amount that you should be "paying yourself" in each decade of life?
Well, since we cannot give you exact numbers - because everyone's income levels are different - what we can do is show you what that savings looks like on a percentage of your take-home pay over time. David Bach, author of the book "The Automatic Millionaire," created this table for an individual's working years and notes how much should be saved for retirement AND emergency savings (IMPORTANT: TWO DIFFERENT ACCOUNTS!) over each decade during your working years. The younger you are, the less you'll need in emergency savings since it is more often than not fairly easy to find a new job. However, if you're nearing retirement, finding a new job after being laid-off (for fired) is not so easy to do, and therefore more emergency money is necessary.
Over time, your earnings ought to increase as well, but note that the percentage of money that should be allocated to your retirement ALSO increases over time. Despite having increasing money over time, it helps if you can learn to be dependent on a much lower amount of money to live comfortably. Doing so enables you to build up a much larger nest egg when you're finally ready to stop working.