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how much should i save for retirement

We all know that we should save for retirement, but actually doing that is a challenge. There are a few basic rules to follow, though, that can help you figure out what your goal should be and how to meet it. A financial advisor can also help make saving for retirement easier. Find one to help you with SmartAsset’s free financial advisor matching service.

The Easiest Way to Calculate Your Retirement Needs

Everyone’s retirement needs are slightly different because everyone is in a slightly different financial situation. In order to calculate the exact savings you will need for retirement, the easiest thing to do is use a free retirement calculator.

A retirement calculator allows you to calculate your specific savings needs. It factors in your age, how much you have already saved, how much you save each month and when you plan to retire.

You can of course calculate your needs by hand, but there is more chance for error and it will take longer than plugging a few numbers into a calculator.

Retirement Savings Rule of Thumb

If you are just looking to get an idea of how much you should save for retirement each year, there is a useful rule of thumb to get you started. Financial experts agree that when saving for retirement, you should try to save a minimum of 10% to 15% of your gross annual income. Many experts, like Dave Ramsey, would even say that 15% is the minimum you should save to set yourself up for success.

Now there are three important things to note. First of all, note that this rule of thumb refers to gross income. That is the income you make before any taxes are removed.

Secondly, keep in mind that this is just a rule of thumb. Your financial situation won’t be the same as your friend’s, coworker’s or your partner’s situations. In fact, your finances at the current moment may be drastically different than what they were five years ago or what they will be five years from now. So 10% or even 15% may not be enough for you personally. For example, if you are in your 40s and you haven’t started saving yet, you will probably want to save more than 15% of your income toward your retirement. This is part of why using a calculator is so handy. You can change your projections depending on specific circumstances.

For total retirement savings, you generally want to save enough to replace around 80% of your yearly income once you are retired.

Finally keep in mind that there are a number of ways to save. This rule of thumb includes all your retirement savings, regardless of whether you save via your employer’s 401(k) or an IRA.

How Much Should You Save for Retirement at Each Age?

how much should i save for retirement

Aside from knowing the amount you should have saved once you hit retirement, it’s useful to know how much you should have saved for retirement at different points in your life. Luckily, there is another rule of thumb that uses multiples of your annual salary.

Age Recommended Savings by Age
30 1x your salary
35 2x your salary
40 3x your salary
45 4x your salary
50 5x your salary
55 6x your salary
60 7x your salary
65 8x your salary

In the table above, you’ll see it is recommended that you save an amount equivalent to your salary by age 30. From there, you should look to have about another salary’s worth saved every five years. That translates to savings of twice your salary by age 35, three times your salary by age 40 and so on until you reach retirement age. By the time you get to 65 to 67 years old, you will want to have about eight times your salary in savings.

Again, keep in mind that these are general numbers. Your exact needs will differ depending on your overall savings goal. But if you can hit these savings milestones, you’ll likely be on the right path.

Retirement Income Rule

Once you’re retired, you’ll need to make sure your retirement savings last. The best way to make this happens is to follow the 4% rule.

This means you should generally withdraw no more than 4% of your retirement savings each year. This is for a few reasons. First, it means that you won’t use up all your savings early in your retirement, leaving you hamstrung as you get older. Second, it means that the money still in your account will continue to earn money through investment, which increases the amount of money you’ll have in your account in coming years.

The Takeaway

how much should i save for retirement

The exact amount of savings that you should have for retirement will depend on multiple factors. The easiest way to calculate your needs while considering all those factors is to use a retirement calculator. Simply enter a few values and get an answer. When you plan your retirement savings, you can also use the rule of thumb that you should save, at a minimum, 10% to 15% of your gross annual income. That is just a general number but it should be enough to get you started.

You can also check the table above to get an idea of how much you should have saved for retirement at different points in your life. Of course, planning for retirement is still challenging. If you want more help, consider working with a financial advisor – someone who knows the ins and outs of retirement planning. A matching tool like SmartAsset’s can help you find a person to work with to meet your needs. First you answer a series of questions about your situation and your goals. Then the program narrows down more than 3,000 advisors to three fiduciaries who meet your particular needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while doing much of the hard work for you.

Tips on Where to Save for Retirement

  • A financial advisor can help you save for retirement. SmartAsset helps you find one with our free financial advisor matching service. You answer a few questions and we match you with up to three advisors in your area, all fully vetted and free of disclosures. You talk to each advisor before making a choice about how to go ahead.
  • A 401(k) takes pre-tax dollars and allows them to grow tax-free. You can only contribute to a 410(k) through an employer and some employers will offer a match. That’s where your employer contributes a certain percentage to your account based on how much you contribute. There is usually a limit to how much your employer will match, but even an extra thousand dollars can really help you. This free 401(k) calculator will show you how money in a 401(k) can grow between now and when you retire.
  • You can also save without going through an employer. That’s where an individual retirement account (IRA) comes in. An IRA offers the same tax benefits as a 401(k) but you can open and maintain an account no matter where you work. It’s important to keep in mind that IRA contribution limits are not as high as 401(k) limits.

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Derek Silva, CEPF® Derek Silva is determined to make personal finance accessible to everyone. He writes on a variety of personal finance topics for SmartAsset, serving as a retirement and credit card expert. Derek is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance® (CEPF®). He has a degree from the University of Massachusetts Amherst and has spent time as an English language teacher in the Portuguese autonomous region of the Azores. The message Derek hopes people take away from his writing is, “Don’t forget that money is just a tool to help you reach your goals and live the lifestyle you want.”
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