June 24, 2014

How much to save for retirement? 10%? 15%? Half of every raise in pay?

The traditional rule of thumb for how much to save for retirement was 10% of income. However, recent research suggests that 15% is a more appropriate guideline. But… think again. Michael Kitces, one of the acknowledged leaders in creative approaches to financial planning, suggests that investing half of every pay raise will be far more effective, even allowing you to retire early. In a nutshell, saving a % of your income means you will continue to increase your spending and level of consumption such that it will be hard to save enough to maintain that high level of expenditure in retirement. Instead, Kitces convincingly argues for saving 50% of every pay raise. Or, put another way, spend 50% of each increase in pay (and invest the rest). With clear prose and great graphics, Kitces makes a convincing argument for a new retirement rule of thumb. Check it out at: http://www.kitces.com/blog/dont-save-10-of-income-spend-just-50-of-every-raise-and-systematically-save-more-tomorrow/

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