I’m thinking about retirement a lot, and I’m in my thirties. Some of my friends tell me that I’m too paranoid, and retirement is far away. Well, it’s only 30 years way… And I have a feeling that if I don’t come up with a system to lay down my nest in next several years, I will not be able to have enough money to spend my time on a beach. Even though we work hard in US, our government nor employers appreciate that, thus we are not going to have good or any pensions. It’s as bad as that, it’s not Europe or the rest of the world…

Anyway, you probably don’t have a clear picture of how much cash do you need to save a year to have enough when it’s time to retire, neither did I, until I just decided to use my common sense.

How Much To Save
I’ve heard some people say if you want to maintain the same level of comfort during your retirement, you need 70% of your current salary. For example, if you are making $100,000 a year, you need about $70,000 a year in your retirement. Fair enough. Why 70%? The explanation is this: you are going to get social security payments, most of you already paid for the house and don’t have mortgage payments, and most of your health care is covered by Medicare (hopefully). I would say it should be minimum you need to aim at.

3 Types Of Retirees
I talked to many older people who is retired now and most of them can be divided into 3 distinctive groups: (1) they are happy and saved enough money for the rest of their retirement, (2) having second thought about their spending habits (went nuts buying expensive cars or houses, which wasn’t really needed except to show off to their co-workers), (3) they wish they had started saving earlier. The most of the people fall into group 3, then group 2, and a very small group of people belong to group 1. And that group 1 is only 6% of the current retirees. That’s the sad reality.

The Cruel Math
Let’s do some cruel math. Your retirement age is 65, and you plan to enjoy your time on this planet till your clock rings at 90, thus we are looking at 35 25 year period. If your time comes earlier, let you grand kids enjoy your savings (that’s what I’m going to do)

Average annual salary in the USA is about $60,000, thus the 70% will be $42,000. The total amount of money you need for your retirement life is about $1,500,000 $1,050,000 ($42,000 x 35 25 years). That’s only about one million and a half, and that’s not bad. You can make that much if you put about $300,000 $192,000 in your retirement account for 35 years with 8% rate and about 3% of inflation (I’m adding inflation here to make a perfect situation, however, usually inflation is not taken into account) and you don’t need to put anything else there during those years. But who has that much money to put down? Not so many people, not who makes 60 grands a year.

After doing some math calculations, I found out that in order to create the 70% retirement salary, a person should save about 15% 10% of the current annual salary to meet the requirement. If you are making $60,000, you need to contribute about $9,000 $5,700 a year, or $750 $475 a month. Is it possible? I think so. Less Starbucks coffee every day… If your company also helps you to contribute into your 401(k) fund (usually 3%), you can contribute even less, only 12% 7%, or $600 $350 a month. I know, putting away $600 $350 when you are making $5,000 (before tax) a month is still not that easy, but you are shaping your own future, and those are your money, and you will need them so desperately when you are 70; and you will hate yourself for not saving enough.

Take care of yourself now, while it’s not too late. I’m working on that myself; you are not alone in your pains…

Update: John Hunter has pointed out that I miscalculated some numbers in this article: I said that there are 35 years between 65 and 90 Bad mistake… I’ve corrected the calculations. Thanks, John! Those who is going to live 100 years, can check the stroked out numbers

Update 2: Nate Whitehill has nominated this article in his Powerful Posts category. That’s really nice of you, Nate!

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