Planning for retirement begins with one question: “How much do I need to retire?” This is a question that haunts many people as they creep closer to 65. However, it doesn’t have to.

By preparing earlier in life, you can put yourself in a position to retire comfortably with the lifestyle you desire. While many Americans miss the mark in retirement savings, you can get a step ahead by following the guidelines below.

How Much Do I Need to Retire Comfortably?

Fidelity suggests that you aim to save 15% of your pre-tax income each year for retirement. This includes any contributions from your employer as well. That number assumes that you begin saving at the age of 25.

Thankfully, another Fidelity report notes that 401(k) balances are at an all-time high nationwide. That’s thanks to a long bull market and more people putting funds into retirement savings.

According to a recent report by CNBC, Americans believe they need $1.7 million to retire. While this number may seem unattainable, it really isn’t that far off. Your financial needs as a retiree will differ than the next person, but living costs continue to rise and millennials need to take note.

There are better ways to answer the question, “How much do I need to retire?” For example, this includes:

• Start saving earlier. The earlier you begin putting money away, the more time your investments have to grow. This also gives you more room to recover from any downturns within the market.
• Delay your retirement a few years. Many Americans want to retire by 60 or 65. But, this can cut into your benefits. You won’t receive full Social Security benefits until the age of 67.
• Reduce taxable income through traditional 401(k)s and IRAs. Your retirement savings account contributions are made before tax, which reduces your taxable income. Therefore, you get a tax break each year you contribute.
• Up your retirement contribution by a minimum of 1% each year. This may be difficult for some, but it can make a huge difference if you are able to. That 1% increase adds up over 20 to 30 years.
• Diversify your portfolio wisely. If you don’t have the experience or time to manage your retirement savings independently, use a passive fund or managed account to ensure your investments grow.

The earlier you begin saving money for retirement, the lower your yearly savings rate needs to be. If you start at 25, you save as little as 15% of your annual income. However, if you start at 35, you will need to save upwards of 23% each year.

Starting Early Can Make All The Difference

In general, you’re going to need 80% of your pre-retirement income after you retire. If you make $50,000 a year, then you will need $40,000 a year in your retirement. The easiest and most successful strategy to meeting this mark is by saving earlier.

First, you need to set a goal for yourself. This will help you determine the percentage you should be saving from your salary each year. Make sure to keep inflation in mind during this stage of the process.

Next, you need to sign up for a retirement savings account, such as a 401(k) or IRA, as soon as possible. Thanks to the new SECURE Act, you might have better access to retirement benefits going forward.

Make a conscious effort to increase your contributions when possible, and consider other factors in your life. Maybe you’d like to travel more in retirement or help your grandchildren in one way or another. By beginning your savings in your early 20’s, you will have more financial flexibility as a retiree.

Don’t Retire Too Early

You won’t become eligible for Social Security benefits until the age of 62. Yet, you won’t qualify for full benefits until the age of 67 if you were born after 1955. Anyone born before 1955 can receive full Social Security benefits at the age of 66.

Medicare is different in that you aren’t even eligible until the age of 65. Retiring before this age can force you into higher premiums and out-of-pocket costs.

The average age of retirement in the United States is currently 63, according to the U.S. Census Bureau. Doesn’t seem to add up, does it? Americans are retiring too early, and cutting themselves out of a lot of money in the process.

Investing Can Save Your Retirement

If you invest your money properly, you’ll be ahead of the curve when it comes to your retirement. Sign up for our daily e-letter below for the latest investment tips and trends. Our experts share their years of experience within the stock market each day.

You don’t have to be afraid of the question: “How much do I need to retire?” There are many ways to retire comfortably anywhere in the U.S. if you prepare the right way. Learn more about the importance of retirement savings today and find your path to financial freedom.