Free financial advice is everywhere. It's literally everywhere, from websites, TV, YouTube videos and even your local broker who's been trying to sell you that insurance policy for years.
You really could become a financial guru if you wanted to. But let's face reality here. EVERYONE struggles to plan for retirement. Whether it's not having the right job, kids needing financial help, or many many other reasons for putting it off - it's just easier not to think about it.
When the moment finally arrives where you think, "ok, now I'm going to really plan for retirement," it might be too little too late.
But there's one rule you can follow that beats all the rest of the noise. The #1 rule of retirement planning isn't a certain stock or index fund. It's not some secret formula that you have to pay for to get access to. It's the most simple formula in the world.
No matter where you are in life or how old you are or what type of job you have, the #1 rule of retirement planning is to save 20% of your income in a protected retirement account like a 401k, IRA, or a combination of each.
5% won't even come close. 10% makes you feel like you're making progress. 15% is good. But only 20% will get you where you want and need to be for retirement. Let's look at some numbers.
If your annual income is $75,000 you need to be saving $15,000 per year. That's $1,250 per month into your retirement accounts.
If your annual income is $150,000 you need to be saving $30,000 per year. That's $2,500 per month.
If your annual income is $250,000 you need to be saving $50,000 per year. That's $4,166 per month.
The annual limit for 401k contributions is $18,500 so the difference needs to be put into a non-retirement account like a basic brokerage account. You'll miss out on the tax advantages but we're not worrying about taxes right now. We're planning for retirement and it's a huge mistake for high earners to just max out retirement contributions and stop there.
If you and your spouse each make $75,000 per year, you can both max out 401k plans for tax deferral.
Don't stop there.
As you make more, get promotions or a raise, you must keep the 20% rule going. Making $500,000 per year means you need to save $100,000 for retirement and NOT BUY that boat you've been looking at on the internet.
It's our mission to help people create retirement plans. If you need help, give us a call at 360.778.2340 and we'll help get you on the right path.