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Once you reach adulthood and become financially independent, one of the major looming questions is “How much do I save for retirement?”. A lot of people don’t really think about saving for retirement until they’re well into their twenties or even thirties. You want to start saving for retirement as soon as you have a reliable income. The earlier you start saving, the more money you’ll have saved up, and the sooner you can retire.

Where to save your retirement money

Ideally, you’ll generally want to save your retirement money in an IRA(Individual Retirement Account) or a 401(k). The reason you want to go with one of these accounts rather than a regular savings account is that these accounts allow you to defer taxes on the money in those accounts, until you start withdrawing money from them.

When to start saving

Another great reason to use an IRA is because of the rate of return. In a regular savings account, you usually have a pretty low rate of return.  An IRA generally has a wide array of investment options depending on your risk tolerance and return expectations.  If you started putting aside $3,000 a year when you’re 25 in an account with an average 7% rate of return, and you continued saving the same amount until you’re 35, you would have about $338,000 saved up when you retire at 65 years old. That means you’ll only invest about $30,000 of your own money, but it will grow significantly. This is one reason why you want to start saving young. If you wait until you’re 35 to start saving, and then save at the same rate for 30 years, when you reach retirement, you’ll only have $303,000 with about $90,000 of that being your own money that you invested.

How much to save

Obviously, you want to save as much money as possible for retirement. The more money you have saved when you retire, the more lavish your lifestyle can be. A pretty standard amount to save, though, is 10%-15% of your yearly income. So, if your yearly income is $30,000, save $3,000 a year, at the very least.

You should be honest with yourself when trying to plan how much you’ll need to live on when you’re retired. You’ll regret it later if you choose to scrimp and save less along the way now, because you’ll have much less to live on when you stop working.