Contract/consulting worker retirement savings?

Jeremy,
I have two 401K plans that sit dormant (no investment from me because I cannot contribute funds) from when I worked for two separate TX counties yet they are building equity. I used to buy stocks and use the dividends to purchase more stock. I think opening an IRA account is a good way to start and you might want to look into starting a REIT account.

Best of luck and good for you that you are thinking of such options.

Gregg

PS, Pertaining specifically to your question the rule of thumb has always been to take 10% of your net income and put it into savings.

 

I think it will depend on your age at this time.

The IRA strategy works better the younger you are (more years of tax-free growth before you need to start withdrawing the money as ordinary taxable income).

There is every likelihood that tax rates will go up even higher some time in the future (we have to pay down the $16.8 trillion in government debt some day), so one theory is it is better to pay taxes now on your investment money while the rates are lower. This theory I think makes some sense if you are in your 50's or older.

No matter what your tax strategy is, the key thing is to save and invest every year.
There are lots of models out there for planning but I like to do my own simple spreadsheet.
Start with a line for each year, your current age, your total savings to date, your annual income, your % saved each year, your money spent each year.

If you're 30 now, then maybe this spreadsheet has 70 lines in it (from age 30 to 100).
Assume some rate of return on investment (ROI) for your savings each year. Start with maybe 3% this year. Also assume some rate of inflation, perhaps 4% per year.
It will become obvious when you try different savings rates in this spreadsheet that 10% of your income is probably the minimum you should be saving each year.

My favorite savings strategy is from the ancient simple book called "The Richest Man in Babylon". Divide your take home pay into 3 parts: 70% you live on, 20% you pay down debt with (credit cards, car loans, home mortgage, etc.), and 10% you save & invest for retirement. When you've paid off all your debt, the 20% then gets added to the 10% and put into savings for retirement (30%). The trick is to learn how to live on only 70% of your take-home pay. Most people can't do it right away, but they can slowly get there whenever their pay increases over the years.
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