Money Mustache’s article called The Shockingly Simple Math of Early Retirement. Let’s look at a couple of graphics that illustrate the relationship between what age you start saving and how high your savings rate needs to be. Keep in mind that the amount you are saving depends on your age. While rate of return and time are also important, savings rate is the most important of all. The biggest impact on your projected retirement age is your savings rate. This can feel overwhelming, but if you create a financial plan with Savology, they do all the work for you.Īs we have already discussed, savings rate has a big impact on your financial plan. That is why it is important to get a personalized financial plan to help you to determine your recommended savings rate based on your age and goals. If you want to retire before the general retirement age range of 65 to 70, or if you have other big goals, then you will need to adjust these savings rates depending on your goals and time frame. If you don’t start saving until you are 40, then the recommendation increases to 20-25% of your gross income. For example, if you start before the age of 32, the CFP Board recommends a savings rate of 10 – 12% of your gross income. The CFP Board makes even more specific recommendations for savings rates based on when you start saving.
The second is how much money you need to have when you retire to support the lifestyle you want to live. The number of years you are able to save for retirement has a big impact. The first is the age at which you start saving. While that isn’t a bad rule of thumb, there are two primary factors that can affect that recommendation: Many personal finance experts recommend a flat savings rate of 15%. A higher savings rate means you’ll either be able to retire earlier or have more money during your retirement. In addition to being something you have significant control over, your savings rate is one of the biggest factors impacting whether you will have enough money to last through your retirement years. So, focus on your savings rate instead of what the market is doing, and you’ll be well positioned to achieve your financial goals. You have a significant influence over your savings rate through your ability to control expenses and increase your income. Covey’s calls this our “circle of influence” in his landmark book, “The Seven Habits of Highly Effective People.” In his book, Covey emphasizes the importance of focusing on the things that fall within our circles of influence, and not expending energy on the things that don’t. You have little to no control over market returns or how long you’ll live, but you can control how much you spend and how much you save. Your savings rate is arguably one of the most important components of your financial plan, but why? It’s what you have the most control over.
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