People are always told that they are not saving enough for their retirement. According to Yahoo Finance, however, people, sometimes, take up extra steps and start to over-save for their retirement, due to fear of penury. How do you find the exact goal to meet so that you would have a peaceful and financially stable retirement?
The eighty percent rule
This rule indicates that an employee must replace 80% of his pre-retirement income. This rate also depends upon the pre-tax expenses and the post tax expenses. About 70% -80% is considered, a good target.
Compare spending with the inflation
Assume that the inflation is increasing around 4% per year and calculate your spending with the inflation. The spending might increase during retirement due to medical cost, travel expenses, holidays and other cost. This phenomenon is called as retirement smile expense curve.
The age factor
If you have started your retirement plans when you are 25, then your savings per year can be a little less than the people who started to worry about retirement when he was 35. The closer you get to retirement, the more you need to save. Another age factor is that if you are planning to retire at 65 and if you are 25 now, there can be a lot of changes that would happen in 40 years in terms of increment, stock gain and change in rates.