Start setting aside cash for your long-term goals, big-ticket items and the proverbial rainy day. » How to check your personal savings rate. Tally all of your after-tax monthly income, including salary, government benefits (such as Social Security), and interest and dividend income. That’s your disposable income.
Subtract from that number all of your expenditures — housing payments, utilities, food, entertainment and so on — to find out how much money you have left at the end of the month. Divide that number by your disposable income and multiply by 100 to find your personal savings rate.
» Where you should be. Your target rate depends on your income and your needs and goals, but even the old guideline of saving 10 percent of disposable income is probably outdated. Ideally, you’ll save 10 percent to 15 percent just for retirement. Plus, you should have an emergency fund that
can cover six to 12 months of living expenses.
» How to improve. Instead of hoping that you’ll have cash in your bank account at the end of the month, pay yourself first. Set up automatic monthly withdrawals from your checking account to a mutual fund or a high-yielding online savings account.
Then assess how you’re doing on saving for retirement.
» How to check your retirement savings. Start with statements from your retirement accounts to see how much you’ve saved so far. Then use the calculator at aarp.org/retirementcalculator to estimate how much money you’ll have in retirement.
» Where you should be. For many people, funding a retirement that could last 30 years or more means living on about 85 percent of pre-retirement income. During your working years, aim to save 15 percent of gross income, including any employer match for your work-based account. Younger people have a big advantage: time. The earlier you start saving, the more time you’ll have for interest and returns to compound.
» How to improve. Take manageable steps toward your goal, such as increasing the percentage of salary you contribute to retirement with each raise and trimming the fat from your spending so you can save more. And enlisting the help of a financial adviser could pay off.
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