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What Percentage of My Salary Should I Save for Retirement?

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“So, just how much of my paycheck should I place in to my retirement account each month?”

It’s a difficult question/decision that many people face, especially young adults that are just beginning their working career. And, as you might have guessed, the special amount is heavily dependent upon each individual’s financial situation and if you are shooting for early retirement. Additionally, the answer depends on another question — how well do you want to live during retirement?

For example, if you have a lot of high interest credit card and/or student debt, payday loans, no health insurance, or no emergency fund, you will want to make you follow the My Money Blog – Account Hierarchy  and dedicate funds to the higher priority areas before beginning to save for retirement.

How Much Do Rich People Save?

To begin, just out of curiosity, let’s take a look at how much “rich” people save. In T. Harv Eker’s book titled, “Secrets of the Millionaire Mind ,” he states that rich people save over 30% of their income. Very interesting!

How Much Should I Save For Retirment?

In order to make this post fully customizable to each individual’s needs, what we’re going to do is make a “super Spreadsheet” version of the Excel sheet I explained to everyone in the previous post at the following link, My Money Blog – Retirement Calculators .

I attached an edit-friendly copy of this spreadsheet at the link below. Please do everyone a favor and save the spreadsheet to your desktop as an excel file before making changes to fit your specific situation.

Once you open the spreadsheet, you will then adjust the following parameters, shown in the orange higlighted cells on the spreadsheet, to fit your specific situation.
  • Current age
  • Current amount saved
  • Assumed annual return

    on investment (before retirement)

  • Current salary
  • Assumed raise each year
  • Assumed inflation rate
  • Present value of the desired income you want during retirement
  • Desired retirement age
  • Assumed age of death
  • And, assumed % return during retirement

What does all of this financial assumption jibberish mean? Essentially, what this spreadsheet is doing is applying the same formulas as discussed in the previous retirement calculator to grow your salary and current savings up until and through retirement. Additionally, we are adding the subtraction of the amount of income you will live on during retirement. We have to thrown inflation in to the mix because a certain $$ income now will not give you the same standard of living at retirement age. We also add a different assumed return % during retirement that is lower than prior to retirement because you will not be able to take on as much risk.

Please note: this model does not take in to consideration taxes involved on 401K withdrawals.

After entering your specific information (and remember, saving it to your desktop so you don’t screw up the spreadsheet for other people), you will then change the purple Percent of Salary You Need to Save Each Year cell to different values. I would start off low (around 5-10%) and then move up to 30-35%.

As you are varying the value in the purple cell from above (G13), what you are looking for is to see that the Current Amount (in column B) at your assumed age of death if not 0, or negative . This would indicate you have ran out of money, or the living death.

If you run out of money before your assumed age of death, you will need to do one of the following things:
  • Lower your standard of living / expected income during retirement
  • Increase the % of your salary you save

I hope this tool gets you on your way to financial success!

Keep on learning!


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Category: Personal Finance

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