If you begin saving 15% of your gross pay for retirement however, you are likely to have enough to retire.
Your retirement funding needs to be funded "first". Just like taxes. Before travel, housing, bills, and "fun". If you don't start now, you will find that trying to "catch up" later is a mathematical nightmare. Starting early beats trying to catch up every time.
A lot of people in your position feel like they just can not (or will not) "spare" 15% of their pay. But these are the same people who are forced to sell their homes, stay home, never travel, and try to live on Social Security in a Section 8 apartment when retirement time comes.
If 20 years from now you look at your retirement fund and decide it's in great shape -- you can always back off the contributions then. But if it's not, you will have lost 20 years of contributions and the growth that goes with it.
EDIT 1: You are correct. Your $20k will grow to $345K in 37 years at an 8% growth rate. HOWEVER - - that $345K will be worth $80K in today's dollars.
In order to make your money last through retirement, a commonly accepted "draw" of 4% is used to estimate your retirement income. 4% of $80K translates to a draw rate of $3200 a year (in today's dollars). I don't think that's the kind of retirement you're hoping for!
If your goal is $500K, you will need at contribute $750 a year, every year (for 37 years at 8%). But that $500K translates to a draw of $4660 per year (in today's dollars).
If you want a nest egg that is able to provide you with $25K per year, you would need to contribute $11,500 every year until you retire. That will result in an account balance of $2.7 million - - or $630K in today's dollars.
You don't necessarily have to start immediately with $11.5K contributions. If you start with $7250 this year, and increase your annual contribution by 4% every year, you will hit the $2.7 million number.
Your goal must account for inflation. While that $345K might (MIGHT) be enough for someone retiring today, it will be worth MUCH, MUCH less 37 years from now.
My point is not to make you feel overwhelmed - - but rather to give you some perspective while you are making financial decisions. I totally agree that you need to "live today" (not "live for today"). And that you need to balance your saving's goals with the lifestyle you want today. Having better information will help you to decide how much to "sacrifice" now. Too many young people are not taking their retirement seriously enough.
What occupation are you in? Is there room for earnings growth over your career? When I was your age, I didn't have two nickels to rub together but by the time I was 40 I was making lots more than I could spend. That is true of most professional occupations, your peak earnings years are 35-55 and you can sock a lot more away. The best advice is to save what you can. But personally, I think you need to allow yourself some enjoyment in life when you are young so don't become a total miser - getting there is half the fun as they say.
Tuff question. The US economy is likely to collapse, in the next ten years, like Greece did. If that happens, your retirement fund will lose a lot of value. That being the case you had better think hard.
I have moved out of the USA. I plan to retire in Myanmar as far from dependance on the US economy as possible.
I also had a vasectomy to avoid having any children.
I am 28 years old and already have a roth IRA. While planning this year's contribution it dawned on me that with my meager wage, I will not be able to rely on the maximum amount I am allowed to contribute year after year, nor will I necessarily even have enough money to come anywhere close to this.
I got lucky in starting my roth IRA at age 24 because I had a small inheritance I was able to jump start it with. However, I make minimum wage currently. This may change as I figure out what I want to do for a career, but realistically I need to limit how much I can put into retirement.
I need to start using some of my income for present things, such as having an emergency fund and traveling, etc. With trying to keep balance between funding myself now and having money for later in life, I need a target number to shoot for. How much money does the average person need for retirement when they hit the age of 65?
Obviously this will depend on many factors but is there a good benchmark figure that would be wise to use?
I can say for sure that I wont be having children so I dont need to worry about buying them a car or sending them to college (and dont say I will change my mind because I have had a vasectomy so it definitely isnt happening!). I consider myself a relatively thrifty person but its hard to predict how much money I will want when I am old.
