How Much Do I Need to Save to Retire?

A key part of retirement planning is answering the question: How much should I save to retire? The answer varies among individuals and largely depends on your current income and the lifestyle you want and can afford in retirement.

Knowing how much you need to save based on your current age is just the first step, but it puts you on the right path to helping you achieve your retirement goals. There are a few simple formulas you can use to get the numbers.

Key takeaways

  • The amount you need to save for retirement depends on your current income and the lifestyle you want in retirement.
  • Knowing how much you need to save “by age” can help you stay on track and achieve your retirement goals.
  • To determine specific amounts, simple formulas must be used.

How much should I save to retire?

Many retirement experts recommend strategies such as saving 10 times your pre-retirement salary and planning to live on 80% of your pre-retirement annual income.

This means that if you earn $100,000 per year in retirement, you need at least $80,000 per year to live a comfortable life after leaving the workforce.

This amount may be adjusted up or down based on additional sources of income, such as Social Security, pensions, and part-time employment, as well as factors such as your health and desired lifestyle. .

The 4% rule

To determine how much you will need to save to generate the income you need, an easy-to-use formula is to divide your desired annual retirement income by 4%, which is known as the 4% rule.

For an income of $80,000, you would need a retirement nest egg of approximately $2 million ($80,000/0.04). This strategy assumes a 5% return on investment, after taxes and inflation, no additional retirement income, such as Social Security, and a lifestyle similar to the one you would live when you retire.

In general, the 4% rule assumes you will live 30 years in retirement. Retired adults who live longer need their portfolios to last longer, in part because medical bills and other expenses can increase with age.

Retirement savings by age

Knowing how much you should save for retirement at each stage of your life helps you answer this all-important question: “How much do I need to retire?” Here are some useful formulas that can help you set age-based savings goals on your path to retirement.

Percentage of your salary

To determine how much you should save at different stages of your life, it can be helpful to think in terms of saving a percentage of your salary.

Fidelity Investments suggests saving 15% of your gross salary starting in your 20s and throughout your working life. This should include savings in various retirement accounts as well as any employer contributions you receive in those accounts, assuming you have access to a 401(k) or other employer-sponsored plan.

How much to save for retirement by age

Fidelity also recommends the following benchmarks, based on a multiple of your annual income, to determine how much you should have saved for retirement by the time you reach the following ages.

Targeting retirement savings by age
Age Annual salary
30 1x annual salary
40 3x annual salary
50 6x annual salary
60 8x annual salary
67 10x annual salary
Source: Fidelity

An alternative formula

Another formula, more heuristic, consists of saving 25% of your gross salary each year, starting in your twenties. The figure of 25% savings may seem intimidating. But remember, it includes not only 401(k) assets and your employer matching contributions, but other types of retirement savings as well.

If you follow this formula, it should allow you to accumulate your entire annual salary for up to 30 years. Continuing at the same average savings rate should yield the following results:

  • 35 years old – twice the annual salary
  • 40 years old – three times the annual salary
  • 45 years old – four times the annual salary
  • 50 years old: five times the annual salary
  • 55 years old – six times the annual salary
  • 60 years old – seven times the annual salary
  • 65 years old – eight times the annual salary

Whether or not you try to follow the 15% or 25% savings guideline, there is a good chance that your actual ability to save will be affected by life events such as job loss that many experienced during the COVID-19 pandemic.

Confidence in retirement savings by age

Are you worried about not saving enough for your retirement? You're not alone. As of September 30, 2023, there were approximately 70 million active participants in the 401(k) program, in addition to former employees and retired adults. And even if they actively participate, people's feelings about retirement vary widely by age.

According to the Northwestern Mutual Planning & Progress Study 2023, the majority of adults (52%) believe they will be ready for retirement, but many worry they won't be. Among those surveyed, 55% of Generation X, 48% of Baby Boomers, 46% of Millennials and 35% of Generation Z have these fears.

These concerns also affect the age at which members of different generations plan to retire. The same study found that baby boomers plan to work until age 71, while Gen Z plans to retire more than a decade earlier, at age 60. Millennials and Generation X plan to work until age 63 and 65, respectively.

These numbers are a little less rosy than the 2022 Investopedia Financial Literacy Study, which found that baby boomers expect to work until age 68; Generation X, 64 years old; Millennials, 61 years old; and Gen Z, the most optimistic about early retirement, said they think they will retire at age 57, three years younger than Gen Z respondents in Northwestern Mutual's 2023 study .

In Investopedia's study, not all adults are particularly confident in their understanding of retirement planning. Behind digital currencies and investing, retirement was the third least understood concept. And retirement was the top personal finance concern for about a sixth of all those surveyed.

At the beginning and middle of your career, you have time to recoup any losses in your retirement accounts. Now is a good time to take some of the risks that will allow you to earn more from your investments.

How to calculate retirement savings

In addition to using the methods above to determine what you should have saved and at what age, online calculators can be a useful tool to help you reach your retirement savings goals. For example, they can help you understand the impact of changing savings and withdrawal rates on your retirement nest egg.

While there are many online retirement savings calculators to choose from, some are much better than others. THE T. Rowe Price Retirement Income Calculator And MaxiFi ESPPlanner are worth it.

How much does a couple need to retire?

Just like an individual, the amount a couple needs to save to retire comfortably will depend on their current annual income and the lifestyle they want to have in retirement. Many experts argue that retirement income should make up about 80% of a couple's final annual income before retirement. Fidelity Investments recommends saving 10 times your annual income by age 67.

What is the 4% rule?

The 4% rule is a guideline used to determine how much a retiree can withdraw annually from a retirement account. Its goal is to make retirement savings last for 30 years.

How much should I save each year for retirement?

A golden rule is to save 15% of your annual income. In a perfect world, savings would start in your 20s and last throughout your working years.

The essential

Sometimes you'll be able to save more for retirement, and sometimes less. What's important is to get as close to your savings goal as possible and check your progress at each benchmark to make sure you're staying on track.

A 401(k) might be a good place to start, if you have access to one. Otherwise, consider an individual retirement account (IRA). Because the importance of saving for retirement is so great, we've put together lists of brokers for Roth IRAs and IRAs so you can find the best places to start these retirement accounts.

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