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Karen Telleen-Lawton: New Year a Good Time to Set New Savings Goals for Retirement

Remember the cheesy adage about today being the first day of the rest of your life? It assured us it’s never too late to reboot. While that’s true, New Year’s Day is particularly auspicious for beginning a good savings habit.

Chances are, no matter what age bracket you are in, you likely are under-saving. Here’s a quick check on whether you fall into this category:

» By age 30, you should have accumulated for retirement the equivalent of about half your annual income.
» By age 40, double your income.
» By age 50, 4 times your income.
» By age 60, 8.5 times your income.
» By retirement, a minimum of 10 times your income.

If you hope to lead an equivalent lifestyle after you retire, these ballpark savings goals set a floor on your desired accumulation. But how do you accomplish that feat? The percentage method and the budget method both begin with saving from your very first (or very next) paycheck.

In the budget method, record all your expenses for at least a month, preferably three. Then assemble a budget going forward. Look for budget designing help from free or low-cost software and apps such as Excel, Mint, PearBudget, Level Money and Quicken. One or more of your budget categories will be savings. The advantage of this method is control: You’ll understand your situation and how certain purchases affect your bottom line. But it does take some time.

In the percentage method, you save a larger percent of your income as you age. In your 20s, 10 percent of every paycheck should be siphoned off automatically into a retirement account. That way, you won’t have easy access to it. At the earlier of age 30 or the birth of your first-born, this should inch up to 15 percent. Hint: It’s harder to jump to 15 percent at the same time you’re taking on family expenses, so why not get used to it when you’re still a single or couple?

At the earlier of age 50 or sending the kids off to college, the percentage you (plus your employer, if applicable) save should reach 20 percent. By this age, it’s a good idea to assess your needs and progress to your goals with a financial adviser. The beauty of this method is that you don’t strictly need to have a budget until you’re within sight of retirement.

Whichever of these ways seems easier to you is the easy way. Either way can be made easier by sticking to a few guidelines:

» Brush your teeth! Dentistry is much more expensive than toothpaste.

» If you can’t guarantee you’ll never be sick or injured (hint: you can’t), buy medical insurance.

» No new credit purchases until any card balances are paid off.

» No impulse purchases.

» Buy generic drugs.

» Shop your insurance.

» Assess all of your high-budget items and be creative about other ways to see your “needs” as merely “wants.”

However you decide to save, you can be sure that you’ll regularly feel blindsided by your creeping age. This lagging perception of your age may be a simple matter of numbers. Since you spent a year as an infant, a year as a 1-year-old and so forth; on average, you’re just half your chronological age!

Nevertheless, calendar time prevails in the end. Saving for potential post-income years is the best preparation for aging. Then Retirement Day can be the first day of an enjoyable rest of life.

— Karen Telleen-Lawton’s column is a mélange of observations spanning sustainability from the environment to finance, economics and justice issues. She is a fee-only financial advisor (www.DecisivePath.com) and a freelance writer (www.CanyonVoices.com). Click here to read previous columns. The opinions expressed are her own.

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