Saving for retirement is one of the most important financial goals you’ll ever set, and knowing how much to save can feel overwhelming. Whether you’re nearing retirement age or planning ahead, understanding general retirement savings guidelines can help you prepare for a financially secure future. It’s important to determine how much you’ll need for retirement, how much to save each year and where your savings should be at key milestones in your life. A financial advisor can also help you assess your retirement needs and goals, and develop a plan to help you get there.
Retirement Saving Guidelines: How Much Do I Need?
One of the first steps in planning for retirement is determining how much money you will need to live comfortably once you retire. Experts often recommend aiming to replace 70-80% of your pre-retirement income to maintain your standard of living during retirement.
This percentage may vary from 55% to 90% depending on, among other factors, your income. Lower-earning savers may need 90% of their pre-retirement income to cover retirement living expenses, while people who have higher incomes may require lower percentages for basic needs.
For example, if you earn $70,000 annually before retirement, you are somewhat above the average for 65-year-olds. In this case, you might aim for an annual retirement income equal to 75% of pre-retirement income, or $52,500.
Bear in mind, this is a projection based on a guideline. And this amount includes income from savings, investments, Social Security and other sources. The amount you’ll actually need in retirement savings varies depending on your lifestyle, healthcare costs, the age you plan to retire, your various sources of income and other factors.
Another benchmark financial advisors often employ suggests saving at least 10-12 times your annual salary by the time you retire. Using this rule of thumb, if you expect to retire with an income of $70,000 per year, you might try to save $700,000 to $840,000. Online retirement calculators can help you estimate a more personalized savings target based on your expenses, income and goals.
Retirement Saving Guidelines: How Much Should I Save?
Saving for retirement isn’t accomplished in a day. To reach a long-term retirement savings goal, consistently set aside a portion of your income throughout your working years. Financial advisors often recommend starting saving by about age 25 and putting away 15% to 20% of your annual income for retirement. This percentage includes both your contributions to retirement accounts, like a 401(k) or IRA, and any employer contributions, such as a 401(k) match.
If you start saving in your 20s, saving 15% of your income could help you comfortably build up your retirement fund over time. However, if you start saving later in life, you may need to increase that percentage to make up for lost time.
You’ll also want to make sure to take advantage of tax-advantaged retirement accounts, which allow your investments to grow tax-free or tax-deferred, helping your savings accumulate more quickly. Regularly reviewing your contributions and adjusting them based on your financial situation can also help ensure you’re saving enough for retirement.
Retirement Saving Guidelines: How Much Should I Have Saved?
To stay on track, there are general retirement savings milestones you should aim to hit by certain ages. These benchmarks are based on recommendations from financial experts to help you save enough at different stages of your life. Here’s how much you should save by:
- Age 35: Experts suggest having saved at least one to two times your annual salary. For example, if your annual salary is $60,000, you should aim to have between $60,000 to $120,000 saved for retirement by this age.
- Age 50: Financial advisors recommend having saved four to six times your annual salary. For someone earning $80,000 per year, this means having around $320,000 to $480,000 in retirement savings.
- Age 60: You should aim to have saved six to eight times your annual salary. If your salary is $100,000, you should have between $600,000 and $800,000 saved to help ensure a secure retirement.
These benchmarks serve as a general guideline, but your exact savings goals may vary depending on your personal circumstances. To repeat, important variables include the age at which you plan to retire and any other sources of income you expect to have in retirement.
5 Strategies to Save for Retirement
Saving for retirement requires careful planning and discipline. Here are some strategies to help you stay on track:
- Set up automated savings: One of the easiest ways to save for retirement is by setting up automatic contributions to your retirement account. Many employers offer the option to automatically deduct a percentage of your salary into a 401(k) or similar plan. By automating your savings, you ensure that money is consistently set aside for your future without needing to think about it.
- Use a retirement calculator: A retirement calculator can provide a personalized savings target based on factors like your current age, income and retirement goals. Using this tool allows you to adjust your savings plan and see how different variables, such as an increase in savings rate or delaying retirement, could affect your retirement nest egg.
- Increase contributions over time: As your income increases over the years, consider raising the percentage of your income that goes toward retirement savings. This step can help you maximize your retirement contributions, especially during your peak earning years. Some retirement plans allow for automatic contribution increases, making it easier to boost your savings over time.
- Update your retirement plan regularly: Life changes, such as getting married, having children, or changing jobs, can impact your retirement goals. It’s a good idea to review and update your retirement plan regularly to ensure that you’re on track. Meeting with a financial advisor can also help you reassess your goals and make necessary adjustments based on your evolving needs.
- Take advantage of employer matching: If your employer offers a 401(k) matching program, contribute enough to take full advantage of it. Employer matches are essentially free money that can significantly boost your retirement savings. If possible, aim to contribute at least enough to receive the full match, as it can make a big difference in the long term.
Bottom Line
Saving for retirement is a lifelong project, and starting early can make a significant difference in how much you’ll have saved by the time you retire. By following general guidelines on how much to save and staying disciplined with your savings plan, you can feel confident that you’re on the right path. Regularly reviewing your progress, making adjustments as needed and utilizing strategies like automated savings and employer matches will help you reach your retirement goals and enjoy a comfortable and secure future.
Tips for Retirement Planning
- If you want to create a retirement plan, a financial advisor could help you identify investment opportunities and manage risks. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- SmartAsset’s Social Security calculator could help you estimate how much your monthly benefit payment will be when you retire.
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