Setting long range goals is always a good strategy, especially when it comes to budgeting and retirement. If things continue to progress as they do currently, the cost of living will be significantly higher for those retiring in 2040 and beyond. Many people have planned timetables for career switches. For some, the plans are to ultimately own their own business. For others, it may be going into teaching, which means lower pay. If your plans are to downsize, you may want to save as much as 20% of your income a yearly basis. If your plans are to limit your lifestyle, the numbers will be different. The bottom line is if you save consistently at a higher rate at your highest salary, you would have some flexibility in saving at a lower rate at a lower salary. This will make the transition from career to retirement easier. As you get older and life becomes more complex with additional responsibilities — advanced education, a house, a spouse, children, planning for their education, taking care of parents — your expenses will grow, too, taking a proportionately bigger bite out of your presumably bigger income. You won’t be living a $25,000 a year lifestyle on a $75,000 income — and nor should you.
Research shows that compared to baby boomers, Generations X, and Y, and the Millennials are guided less by money and more by a desire for work-life balance and finding meaning in their work. If you fall into one of these groups, it’s likely you will try out multiple professional identities in your quest for professional fulfillment.
Even though mathematically you may be right in thinking that saving 15% of a small salary is less significant when you compare it to saving 15% of a large salary, the danger is you can always convince yourself that there will be a better, easier time to save. The more money you save now and the more consistent you are with your savings, the more options you will have in the future, and the better prepared you will be for however those options play out.
There is a given; you and you alone are responsible for your own retirement in a way that other generations have not been responsible. The truth is, longevity with a company just does not matter as much, because few companies still offer defined benefit plans. This should be empowering, however. Management of your own retirement may be considerably more lucrative if you plan accordingly.
Chances are good that you can’t be sure at any given time whether you are at a high point or a low point in your earning power, so you need to commit to saving 15% for retirement, no matter what. Otherwise, you will be making all sorts of guesses about the future — and hoping you get them all correct. The odds of making all the right guesses are pretty low.
Source: Conrad, Bonnie. “Retirement Concerns, Goals and Objectives.” EHow. Demand Media, 16 Sept. 2010. Web. 16 July 2013.