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How Much Should You Save for Retirement?


We all know that we should save for retirement but actually doing that can be a challenge. Many people don’t know where they should start or how they can find the right amount of money in their budget to make it a reality. Others aren’t sure how much they need to save and even though they are taking action they aren’t saving enough. There are a few general rules that you can follow 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 by creating a financial plan for you or even managing your assets.

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 in your budget 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 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 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.

AgeRecommended Savings by Age
301x your salary
352x your salary
403x your salary
454x your salary
505x your salary
556x your salary
607x your salary
658x 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. One of the most popular ways 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 the coming years.

The Bottom Line

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.

Tips on Where to Save for Retirement

  • A financial advisor can help you save for retirement by helping create a financial plan and even managing your assets. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve 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.
  • 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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