How Much to Invest in a Retirement Account

Whether you are living during tough economic times or good years, the amount of money you invest in your retirement will change as time moves on. A wise investor is going to shift money from stocks, bonds or money market funds on a regular basis, as these investments may experience the highs and lows of the financial market. But the amount you invest also depends on where you are in life and when you plan to retire, as well as the sudden changing times and the dramatic increase in life expectancies.

Theories/Speculation

For beginners, a general rule of thumb is to put away ten percent of your income for retirement savings when you first enter the workforce. Your fund will fatten up before you know it. That would leave seventy percent for your overall living expenses and twenty percent on hand for typical debts that might include mortgages or other loans. This investment rule is explained eloquently in "The Richest Man in Babylon," the classic George S. Clason book still followed today by financial experts.

Time Frame

Naturally, investing will need adjustments as you age. Some advisers recommend investing fifteen percent of your income during your twenties and up to twenty-five percent as you near forty for your retirement nest egg. It is assumed you will be in a higher income bracket as you get older and therefore can afford more funding now to soften your later years. Many people have the options of an employer retirement plan along with their own savings.

Benefits

The percentage of your investment is also determined by how much you will need as you get closer to the golden years. A fifty-year-old person might discover it is necessary to invest more aggressively in order to retire comfortably at age sixty-five. That could mean putting aside thirty-five to more than fifty percent of income toward retirement. If you are willing to sacrifice a bit just before retirement, you could greatly enjoy the results. Many organizations, including AARP, have retirement calculators to determine the best route for you.

Considerations

It's also important to keep an eye on your investments. People in their forties or fifties might have fifty percent of their portfolio in stocks. With the rise and fall of the market, they would still have time to rebuild any losses before retirement. It would be better for a seventy-year-old person to keep a much smaller amount, thirty percent or lower, in stocks. At advanced ages it is wiser to keep most of one's money in safe havens, such as annuities or even gold.

Warning

Some people get the blues when they see the headlines during bad times and believe they'll be working the rest of their lives. But remember, investing in retirement is for those times when you can't work anymore. Despite the volatility of the market, there are financial experts who believe retirees should continue investing a little bit in somewhat risky stocks, as long as the major portion of their money is safely invested. The risk may bring them needed money in the long run during their later retirement years.

Resources

• The Richest Man in Babylon
• AARP