How much should I be investing?
Be Careful...Rules of Thumb could be ROT!
It used to be that we were told that if we are investing for retirement, that we should put 10% of our income into retirement. Due to people starting their retirement investing later in life, being out of the work force for any number of reasons like raising children, taking a year off, caring for aging parents, etc., the new rule of thumb is to invest 15% of your gross income for retirement.
The problem with investing 15% is that if you're like most Americans, you're behind in the amount that you should already have saved for retirement. If you're behind and only invest 15% you may have consequences that include needing to work longer than you wanted to work. Also, you may have to sacrifice lifestyle. You might still retire when you'd like to, but the trade off is that you end up with less income and therefore, less of a lifestyle, than you want.
So, how much do you need?
The answer to that is complicated. A CERTIFIED FINANCIAL PLANNER™ can help you navigate through the complexity and offer you guidance based on your particular situation. No two clients are ever the same, so to give a blanket recommendation or to offer advice based soley on Rules of Thumb (ROT) is a recipe for disaster.
The answer to "Am I On Track?" involves the details surrounding these and many other pieces of information:
- Current income and expenses
- Lifestyle costs
- Future, large ticket expenses
- Plans to upsize, downsize, relocate, buy additional homes, properties or businesses
Lifestyle is a major consideration because of how much one's interpretation of lifestyle can vary from person to person. You probably know someone who thinks they're fairly conservative with their spending, but in your opinion spends a ton of money. Their financial plan will look completely different from yours in the aspect of how much they need in the future, how much they may already have saved, and how the money is going to be invested.
Someone who has ample investments to suit their future lifestyle can choose to be invested less aggressively compared to someone who got a late start, isn't putting a ton of money into investments or has a lot of debt.