As our car loan payoff date is approaching (kind of), I’m crunching numbers on our next steps: Saving for retirement, saving for Jonathan’s education, and saving for a down payment on a house. I’ll discuss these three savings goals in separate posts.
The often-tossed around figure for retirement savings is 15 percent of your gross income. Since it is only meant as a rule of thumb, it’s important to actually crunch numbers to see if that figure is enough for you to reach your goals.
If you haven’t started saving for retirement until your mid-30s or earn a low salary, then 15 percent might not be enough.
- We’ll wait until age 59 (and a half!) before we make any retirement account withdraws, since doing so before that would be slapped with penalties.
- We’d live to be 100. It’s certainly possible. Today is my great-grandmother’s 98th birthday, and Shane’s grandfather will turn 90 next month.
- An 8 percent rate of return during the working years, and a 6 percent return during retirement.
- We’re not counting on any money from social security.
- In retirement, we’ll have no mortgage.
Given these many assumptions, it does look like saving 15 percent of our current income is appropriate.
Right now, thinking about saving that much is a bit daunting. But we have to do it. You see, even if Shane never gets another raise, that 15 percent contribution will still be enough. With inflation and (hopefully) pay raises, in a few years, that same $xxx contribution won’t feel like much.
A raise or a company match would just be gravy. How cool is that? I love compound interest.
So while investing $xxx each month right now seems like a lot, pretty soon, it’ll feel automatic. We won’t miss the money. And, I’m pretty sure that Shane’s salary will go up over time, and maybe once the economy gets better, a company match might make a comeback and sweeten the deal.