Before you book that next big vacation or buy those expensive shoes, ask yourself: do I need this? The fact is, no matter how young you are, you shouldn’t spend frivolously. After paying the bills, saving for retirement should be your number one priority. Today’s generation is going to live longer than anyone ever before. And if they’re not careful, they could outlive their savings.
Do You Know How Much You Need To Retire?
Roughly half of the adult population won’t have enough money saved to retire. Some of them don’t have any savings at all.
Why is it that a full 50% of the population isn’t preparing for old age? There is often an assumption that you can start saving later, or there will always be time to catch up. But that’s not the case.
How To Calculate Your Retirement Readiness Score
A retirement readiness score is based on several factors including your age, annual income, current retirement savings, and more. If you do a quick Google search, you will find dozens of online calculators that can do the math for you. They’ll all answer the same question: “Am I saving enough to be able to retire?”
If you’d rather do the work yourself, a common guideline is to aim to replace 70% of your annual pre-retirement income. You should factor in retirement accounts, savings, Social Security, and any other income sources.
Keep in mind that your expenses are likely to change later in life. Company-funded healthcare and vacations will be a thing of the past, but you will likely have paid off your mortgage and other outstanding loans. Depending on your personal situation and what you plan on doing in retirement, that 70% benchmark can either go up or down.
How Can I Raise My Score?
If you find that your score is in the red, there are several things you can do to get back on track. First, start saving more money. Figure out a budget and set aside everything you comfortably can.
Next, take a look at your 401(k). Chances are, you’re not investing appropriately for your age. And finally, talk to a financial planner. Thinking about retirement can be scary. Knowing your score can help keep you on track.