July 31, 2008

How Much Should You Contribute To Your Retirement? - Part 2

I gave you a few days, so did you do your homework? If so, then you are ready for this section.

If you reside in a county where you do not contribute to Social Security, then no matter what your other mandatory options are (Gwinnett, Rockdale, etc.), you really need to make sure to put a total of at least 12% of your salary away.

For example, in Gwinnett this would mean starting a 403(b) with a 6% contribution (pre-tax) every pay period. I get to 6% by starting with my 12% goal and subtracting 5% (TRS) and 1% (GRS).

In Rockdale, you would start an additional 403(b) - on top of the employer and employee mandatory 403(b)s - with a contribution of 5% (pre-tax) every pay period. Start with your 12% goal and subtract 5% (TRS) and 2% (mandatory 403(b) from the employee).

For those that do contribute to Social Security, you are actually already at 11%, so even if you can just put away that 1% into a 403(b), that is better than nothing. This will just mean that in retirement, you can have a savings account already established.

If you make 45,000 a year, and you contribute just 1% per month ($37.50) the first year, and you increase it just 2% every year for twenty years, you end up with over $25,500 assuming an 8% per year rate of return.

This is just a basic guide, and by all means, if you can do more, you should, but these should be good numbers to start with. Once you see it really does not affect your take home pay, look to raise it by 1% or 2%. Once you get to retirement, you will feel a whole lot better about what you have accomplished!

Next discussion in a couple of days will be about 403(b) providers. Are all of them the same? NO!

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