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How soon should I start saving and how long does it usually take to get to that amount?
Jessica, great questions. Unfortunately the answer to your questions depends on so many things: desired lifestyle in retirement, fixed income sources in retirement, current assets, and so on. As for how soon to start saving, AS SOON AS POSSIBLE! You should first weigh the benefit of paying down debts that have high interest rates versus saving. Then, if you or your advisor come to the conclusion that you should save, save as much as you can. I would recommend finding an independent financial planner to help you determine where you stand compared to your goal or, if you are just starting out in the workforce, use one of the many free online tools as a starting point (Fidelity has some very good tools for individuals).
We tell our clients to start now and save as much as they can. Research suggests a savings rate of 10 to 15% of salary beginning with your first job. We don't know of anyone who has retired and said, I wish I hadn't saved so much money.
Keep in mind: you save for a down payment on a home or car. You can "save for retirement" but you could look at it as investing for retirement. And as the others say, save as early as possible. Also, remember that you can borrow money for a child's education, a home purchase or a car; however you cannot borrow money for retirement. Pay yourself first!
Do the math. If you have a $1 million portfolio and are taking 5% withdrawals a year, trying to just live on the dividends and interest, then this would be $50K a year. Can $50K support your current standard of living when coupled with Social Security? What do these numbers look like when adjusted for inflation? Consult with a certified financial planner on this if you have not already done so.
That is a question that depends on you - how much you save, when you start saving, your investment rate of return, your risk tolerance, when you want to retire, what you want youre lifestyle to be in retirement and many other factors. You should really seek professional advice and build a retirement plan based around your personal financial goals...you also have to factor in marriage, children, daycare, sending kids to college, other life events...you really want to work with a professional here.
Simple rule of thumb - determine how much you will spend each year in retirement and multiply that number by 25. For instance, if you will spend 50,000/year. You will need 50,000 x 25, or 1,250,000 in investments. If you will receive a pension or annunity or social security benifit you can subtract those amounts from what you will spend. For instance, if you will receive a yearly pension of 18,000 and yearly social security of 12,000, subtract those amounts from 50,000. 50,000 - (18,000 + 12,000) = 20,000. Mutiply 20,000 by 25 = 500,000. This is the amount of investments you will need. The above rule of thumb provides a good ballpark number you should be striving to accumulate.
It typically takes 15-18% contributions to your plan to replace 80% of your income in retirement.