I’ve had a great time chatting retirement at two separate events last week. Both times I came away feeling uneasy about the go-to 15% savings rate for retirement. I suspect we’ve been anchored at that number because that used to be the tax break. I also suspect that number is only correct under very specific conditions.
If you started saving 15% of your salary since your first pay cheque and you plan to retire at 65, 15% might be enough. Then again, it might not be. How would you know?
Here’s what you need to work out how much you’ll need to retire.
At my current savings rate, I’ll be able to retire in 17 years. At a 15% savings rate, I’d only be able to retire in 25 years. That’s taking into account the 27.5% I’ve been putting towards my RA already and my current tax-free savings.
I could still retire before 65, but I’m a long way away from my early retirement goal. Even at my current savings rate I miss my retirement goal by 10 years. There was a time I was set on retiring at 40. Guess that ship has sailed.
I have two options to reach my retirement goals. Save more, or cut down on my cost of living. Saving more means earning more, which is largely out of my control. What I can control is my cost of living. Time for some planning!
The point of this episode is that the perfect retirement savings number will be different for everybody. Run the numbers for your goals and make sure you’re on track. Do this once a year to make sure you are where you need to be.