When you are young and just entering the workforce, retirement may not be first on your mind. However, what you do (or did) in your 20s lays the groundwork for the type of retirement you will enjoy. Since the days of relying solely on Social Security benefits or a company pension are gone, your nest egg is the most important aspect of retirement.
While you may not be able to depend completely on government or company benefits, they can still be a contributing factor to your nest egg. Social Security and pensions are good subsidies to your overall financial plan for retirement. For most people, the bulk of your nest egg will consist of retirement accounts, like employer-matching 401(k) plans, stocks and bonds, savings, and IRA and Roth IRA accounts. Other money may be tied up in investments such as real estate and life insurance.
With a range of demographics to consider such as age, earnings, education, location and industry, it is tough to put a number on what the "average" nest egg is. It is easier and perhaps more useful to calculate what you should have for your specific circumstances. A 2011 MSNBC article estimated that workers between the ages of 46 and 54 should set aside 14.6 times their ending salary in order to maintain their lifestyle after retiring. Workers aged 31 to 45 should have 16 times their final salary and those between 18 and 30 will need 18.7 times their ending pay.
Figuring out how taxes on retirement accounts work may seem complicated, but in reality, it is fairly straightforward. You either pay taxes now on the amount you contribute or you pay later, when the funds are disbursed. With a traditional IRA or 401(k) plan, you contribute with pre-income tax dollars and pay taxes when you withdraw. With a Roth IRA, you pay those taxes upfront in the form of your income tax; however, the account growth thereafter is tax-free.
When planning your nest egg, you will have to consider what is wise and average for your age bracket. CNN Money recommends saving as much as possible when you are young. You're also able to take the most risk at that point. As you age, retirement becomes more of a reality and you are not able to risk as much since you'll need the money sooner. You are more susceptible to market swings and dips in the economy and don't have as much time to recover.
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