If there were a specific retirement savings target that could guarantee long-term financial security, socking funds away for our golden years would be easier. But alas, that magic number doesn't exist. Instead, it's on us as individuals to come up with a savings figure that can lend to a worry-free retirement.
That said, there are some basic guidelines to follow. For example, it's a good idea to close out your career with 10 times your ending salary socked away in a 401(k) or IRA. But you may not need that much money. Or, you may need more. Ask yourself these important questions to narrow that figure down.
Image source: Getty Images.
1. How long do I plan to work?
The longer you play to stay in the workforce, the later you're likely to claim Social Security. And if you're able to grow your benefits, you may not need quite as much savings as someone who files early. You're entitled to your full monthly Social Security benefit based on your unique wage history starting at full retirement age. If you were born in 1960 or later, that age is 67. You can also sign up for benefits early -- beginning at age 62 -- but doing so will leave you with a lower benefit for life. Or, you can delay your filing past full retirement age -- up until age 70 -- and score a higher benefit.
2. Where do I plan to live?
Some parts of the country are more expensive to live in than others, so the area you settle down in for retirement will partially dictate how much money you'll need. If you opt for an area where state income taxes are low or non-existent, for example, that could give you more leeway to save a little less.
3. Will my home be paid off?
Many seniors enter retirement mortgage-free. If you're able to do the same, then you may not need quite as much money saved as someone who's still on the hook for a monthly mortgage payment. That said, even if your home is paid off by retirement, you'll continue to face ongoing expenses like homeowners insurance, property taxes, and maintenance, so don't use having a paid-off home as a reason to skimp on savings too much.
4. How do I want to spend my days?
It'll cost less money to volunteer at an animal shelter and tend to your garden than it will to join a country club and travel the globe. Spend some time thinking about what you really want to get out of retirement. Many people are content staying close to home and spending time with friends and family. If you're one of them, you won't need as much money as someone with more expensive goals.
Saving for your senior years is important. But it's also important to figure out what savings target is right for you. Maybe it's $1 million. Maybe it's $300,000. Put some thought into coming up with that number so you can enjoy your dream retirement, whatever it happens to look like.
