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As a business owner, you have probably asked yourself the questions, “How much should I contribute to an IRA? And how often?” In today’s blog, you will find guidelines on how much money you need to save to retire comfortably.
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If you’re in your 20s, 30s, or 40s and you have a 401(k) and an IRA, congratulations! You’ve taken the first steps to save for retirement.
But how much money should you have in your IRA for a comfortable retirement? And how much do you need to carve out of your annual salary before you retire?
The answers depend on many factors, including when you expect to leave your job, your lifestyle, the state of your health, and how much money you’ll need when you retire.
More than 22% of Americans have less than $5,000 saved for retirement. Another 15% have no retirement savings at all. Perhaps this can be attributed to the fact that almost half the American population doesn’t believe that they make enough to save adequately for retirement. On the bright side, it’s never too late to start saving for retirement.
The most important things to focus on when determining how much to save in your IRA are how much money you plan to spend in retirement and how you intend to raise the money for retirement. This blog post covers how much money you should have in your IRA to retire comfortably.
How Much Should You Contribute to an IRA?
How much do I need to retire? You probably asked this more than once, and the answer is not that simple. As mentioned earlier, how much money you need for retirement depends on several factors including:
- Investment risks
- Medical care needs
- The level of inflation
- Your retirement location
Of course, you will need to include other factors that may also be present at the time of your retirement.
As a general rule of thumb, you should contribute 15% of your pre-tax earnings to your savings for retirement.
You may have goals and aspirations for the kind of life you want to live after retirement. But can you afford it? The IRS limits maximum savings for traditional IRAs and Roth IRAs to $6000 (for people aged 50 and older) yearly, which translates to $500 every month. Those younger than 50 years can only save up to their taxable income for the year.
Is 15% Enough?
Saving 15% of earnings before tax should be enough to cover you in retirement, provided that you start saving early in your career. To put things into perspective, most people will need between 55%-80% of their pre-retirement income to maintain their lifestyle.
However, that amount may come from other sources besides your IRA, including Social Security benefits and employer matches. With proper planning and wise spending, saving 15% should be enough to get you back on track no matter how much you earn.
When Should I Contribute to an IRA?
If you’re not already contributing to an IRA, you should get started as soon as possible. The earlier you start, the better. And if your employer doesn’t offer a retirement plan, or if you’re self-employed, you may want to set up an IRA as early as now.
Additionally, you can make the most out of your retirement savings with a mix of IRA contributions and a 401(k) with your employer’s partial or dollar-for-dollar match.
How Much Should I Have Saved Now?
Savings for retirement also depend largely on the age of a person. For instance, a 25-year-old may not have the same amount of money in their retirement account as a 65-year-old.
According to Fidelity Investments, you should have the following amounts saved to retire depending on your age:
- At 30 years old, you should have saved an amount equal to your annual salary
- 40 years old: 3 times your annual salary
- 50 years old: 6 times your annual salary
- 60 years old: 8 times your annual salary
- 67 years old: 10 times your annual salary
As you can see, there is still time to get your finances together so that you can be on track when you come to retirement age. Don’t forget to be consistent between payments.
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Need a Little Help?
Planning for retirement on your own can seem overwhelming. Professional help might be just what you need.
Interactive Wealth Advisors is a Portland business and financial solutions firm serving Portland and all surrounding areas. We provide objective financial planning services, Roth IRA planning and estate planning in Portland, OR.
So, reach out to us today for expert advice that keeps you in control of your wealth, while simultaneously building a future you can look forward to.
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