Knowing how much you should save for retirement and whether you are on-track, are questions for everyone. Let’s focus on how much you need to save per paycheck, and your target savings at various ages.
The answers are imprecise because the future is uncertain — we don’t know how long we will live, our future living expenses, or what our future investment returns will be.
To complicate things further, your savings rate depends on many factors. Consider these:
With these caveats, I offer you two answers to the question of how much to save for retirement:
1. How much should I be saving each paycheck? Assuming you save continually throughout your working lifetime, here’s about how much you should save based on the age at which you begin:
If you wait until your forties to begin saving, your retirement goals become more challenging, but are still achievable. You will need to reduce your current spending and you may also need to work more years before beginning retirement.
Those two changes — spending less now and later, and working more years — have big positive effects on your retirement security and can get you back on track.
2. How much do I need to have saved at various ages to be on track for a financially secure retirement? This table answers that question:
Higher income earners need to save a higher percentage of their income simply due to the progressive benefit structure of Social Security — it replaces a lower percentage of income for higher earners.
To orient you around this table:
- If your income is $80,000 and you are at the retirement age of 67, you need $680,000, along with Social Security, to maintain your current standard of living — 8.5x your income; if your income is $120,000, you need 10x your income. At incomes greater than $120,000, the multiple of savings you would require would go up a bit more.
- If your income is $50,000 and you are currently 40 years old, $100,000 of savings would put you on track for your retirement saving target.
- The 40-year savings rate is the amount you’d need to save each paycheck to achieve these targets, assuming you did so continually for 40 years.
- Keep in mind that these targets assume you now spend all of your income, other than what you are saving for retirement. If you don’t spend your full income, then you will need proportionally less at retirement for your indicated income simply because you have a lower cost of living than your current income allows.
If you have a pension, these calculations change and you need to accumulate less savings than indicated in the tables.
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