How Much Money You Should Have For Retirement


What Are The Average Savings By Age

How Much Cash Should You Have In Retirement?

Unless youre an actuary, you probably have only a vague idea of how much money you should have saved for future expenses and retirement — and whether or not you are on the right track. The amount you should be saving each year is a complex calculation, economists say, so theres no right answer. Still, knowing Americans average retirement savings by age can help you gauge your progress.

The Economic Policy Institute , a non-profit, non-partisan think tank specializing in research on the economic situation of low- and middle-income workers, published a revealing 2019 report called The State of American Retirement Savings. Using data from the Federal Reserve Boards Survey of Consumer Finances, conducted every three years, the institute arranged the retirement savings statistics by six-year cohorts. The study looks at families headed by someone age 32 to 61 a 30-year period before the Social Security early eligibility age of 62 when most families should be saving for retirement.

How Much To Save For Retirement

According to Fidelity, you should be saving at least 15% of your pre-tax salary for retirement. Fidelity isnt alone in this belief: Most financial advisors also recommend a similar pace for retirement savings, and this figure is backed by studies from the Center for Retirement Research at Boston College.

For many people, however, saving for retirement isnt as simple as setting aside 15% of their salary.

The 15% rule of thumb takes a couple factors for grantednamely, that you begin saving pretty early in life. To retire comfortably by following the 15% rule, youd need to get started at age 25 if you wanted to retire by 62, or at age 35 if you wanted to retire by 65.

It also assumes that you need an annual income in retirement equivalent to 55% to 80% of your pre-retirement income to live comfortably. Depending on your spending habits and medical expenses, more or less may be necessary. But 55% to 80% is a good estimate for many people.

Finally, the 15% rule wont provide you with a nest egg that supplies all of your retirement income. Youll most likely derive part of your retirement income from Social Security, for example. All in all, the 15% estimate should provide you with steady retirement income that lasts into your early 90s, at a rate of around 45% of your pre-retirement income.

Saving For Retirement: Where Are You Now

Whether you plan to live lavishly or frugally, youll need to have a certain amount of money saved by the time you retire. Think of this figure as a mountain summit, reachable by several different paths. If youve done everything right so far, that summit is still in plain view youve followed the most direct and least difficult path, and all you need to do is continue on in the same direction. If, however, your savings arent where they should be, its as if youve wandered in the wrong directionyoull need to recalibrate and start climbing in order to reach the summit.

To determine your current financial coordinates, you need to answer three questions:

  • How much have I saved thus far?
  • How many years until I retire?
  • Whats my annual income ?

The answers to those questions will determine how much work you have to do to reach that mountaintop. If youve saved plenty and youre still young, greatyoure well on your way. If youve saved nothing and your 60s are just around the corner, not so much. Lets check out some examples using our retirement calculator to see how this works in reality.

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Staying On Track With Benchmarks

Once you set a retirement savings amount based on one of these guidelines, aim to save enough to meet that goal.

The U.S. Department of Labor Savings Guide provides Worksheet 4 to help you find out the percentage of income you’ll need to save each year to meet your goal. The worksheet takes you through four steps:

  • Estimate the amount of income you need in the first year of retirement.
  • Figure the amount of savings you need at retirement. This is how much you will need to last you through retirement.
  • Determine the current value of your savings at retirement. This is how much your current savings will grow by the time you retire.
  • Find your target savings rate. This is the percentage of your salary that you need to save each year to meet your goal.
  • So How Much Income Do You Need

    Retirement planning: Here

    The reason you don’t need to replace 100% of your pre-retirement income is that, when you retire, you’re typically able to eliminate certain expenses. For example:

  • You’ll no longer have to save for retirement .
  • You might spend less on commuting expenses and other costs related to going to work.
  • You may have paid off your mortgage by the time you retire.
  • You may not need life insurance if you no longer have dependents.
  • But retiring on 80% of your annual income isn’t perfect for everyone. You might want to adjust your goal based on the type of retirement lifestyle you plan to have and if your expenses will be significantly different.

    For example, if you plan to travel frequently in retirement, you may want to aim for 90% to 100% of your pre-retirement income. On the other hand, if you plan to pay off your mortgage before you retire or downsize your living situation, you may be able to live comfortably on less than 80%.

    Let’s say you consider yourself the typical retiree. Between you and your spouse, you currently have an annual income of $120,000. Based on the 80% principle, you can expect to need about $96,000 in annual income after you retire, which is $8,000 per month.

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    Age : The 1x Recommendation

    When starting your career, commit to automatic savings of 20% per year into your 401. It will discipline you to live and give on the remaining 80%, said Jason Parker of Parker Financial in the Seattle area, author of Sound Retirement Planning and host of the Sound Retirement Radio podcast.

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    What If You Have More Retirement Savings Than You Need

    After using the retirement income calculator, you might have realized you have more in savings than you thought. While a big pot of money on its own doesn’t necessarily mean you have enough for retirement, if you realize you have enough to generate guaranteed income to cover your retirement budget, you potentially have room to cut back on how much you’re putting away for retirement. You could redirect some of that money for a family member’s tuition, a dream vacation or a charitable donation. Or maybe you’ll want to retire early. After all, you can start taking money out of certain retirement plans once you turn 59½.

    Don’t rush into this decision, howeverâespecially if you enjoy working. With more in savings, you would be better protected in case of a market downturn, health emergency or other costly surprise comes up.

    It won’t hurt to have more in savings, but there are strategies that may be more efficient depending on what you’d like to do with any extra money. Flexibility is key, so you can make adjustments as things change.

    If your work structure allows it, consider doing a trial retirement. Take off as much time as you can as temporary leave and try living your planned retired life. It may help you decide if you’re ready to retire. And if you don’t, there’s nothing wrong with working longer and saving more for yourself and your loved ones.

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    How To Calculate Retirement Savings

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

    Although 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 ESPlanner are two worth trying.

    How Can You Catch Up On Your Retirement Savings

    How Do I Know When I Have Enough Money to Retire?

    If your savings aren’t where you’d like them to be, don’t be discouraged. Whether you were unable to save early in your career or are still dealing with pandemic-related financial losses, making extra contributions, downsizing your expenses, checking your investment strategy, delaying retirement and re-imagining your retirement lifestyle can help you catch up on your retirement savings:

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    Use Caution With Retirement Savings Benchmarks

    General benchmarks, such as Fidelitys savings factors and calculations based on your expected replacement income or withdrawal rate, provide an acceptable starting point for determining whether you are on the right track with your retirement savings. For many people, the savings amount that these benchmarks reveal will serve as a healthy wake-up call about retirement.

    It’s important to know that these are simply milestones and can be somewhat of a moving target. A good retirement plan requires more than a one-size-fits-all approach.

    How Much Money Do I Need To Retire At 55

    If your goal is to retire at age 55, Fidelity recommends that you save at least seven times your annual income. That means if your annual income is $70,000 a year, you need to save $490,000. But remember, this is only an estimate it doesnt consider your unique goals and other unknown variables, like future medical expenses and your life expectancy.

    Also, keep in mind that there are benefits to waiting to retire. For example, those born between 1943 and 1954 can take 100% of any Social Security benefits you qualify for if you wait until your full retirement age at 66. And the longer you wait, the more the benefits increase up to 132% if youre 70 or older.

    If you expect to receive a pension, waiting could increase the percentage of your salary you receive during retirement. The amount will likely depend on certain factors, like your years of service and income. Youll have to contact your benefits department for specifics.

    In addition, waiting until youre 59½ to withdraw money from a Roth or Traditional Individual Retirement Account will give you access to your funds without penalty.

    Waiting also allows you to add more catch-up contributions additional funds investors who are at least 50 years old can add to certain funds, including IRAs, 403s and 401s.

    To estimate how much money you need to retire by a certain age, use our retirement calculator.

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    Im 35 What Should I Have Saved

    There is a lot of research showing that people tend to rely on approximations or rules of thumb when it comes to financial decisions.

    With this in mind, many financial firms publish savings benchmarks that show the ideal levels of savings at different ages relative to an individuals income. A savings benchmark isnt a replacement for comprehensive planning, but it is a quick way to gauge whether youre on track. Its much better than the alternative some people useblindly guessing! More importantly, it can act as a catalyst to take action and start saving more.

    However, for the benchmark to be useful, it needs to be realistic. Setting the target too low can lead to a false sense of confidence setting it too high can discourage people from doing anything. Articles on retirement savings goals have generated spirited discussion about the reasonableness of the targets.

    So, to answer the question, we believe having one to one-and-a-half times your income saved for retirement by age 35 is a reasonable target. Its an attainable goal for someone who starts saving at age 25.

    For example, a 35-year-old earning $60,000 would be on track if shes saved about $60,000 to $90,000.

    Savings Benchmarks by AgeAs a Multiple of Income

    Schwab’s Suggested Allocations And Withdrawal Rate

    How Much Money Needed To Retire At 40
    • Planning time horizon
    • Planning time horizon

    Schwab Center for Financial Research. Initial withdrawal rates are based on scenario analysis using CSIA’s 2022 10-year long-term return estimates. They are updated annually, based on interest rates and other factors, and withdrawal rates are updated accordingly.1 Moderately aggressive removed as it is generally not recommended for a 30-year time period. The example is provided for illustrative purposes.

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    The Signs Say Youre Ready To Start Investing You Can Go In Small

    Can you invest an extra $100 a month? Even small amounts can add up over time.

    In fact, your investments have the potential to multiply. Stuffing $100 a month in a jar for 30 years would get you $36,000. Invest that same amount at a 6% annual rate of return, and through the power of compounding, that investment could grow to nearly $100,000 in the same time.1

    Lets say you invest through a retirement account, such as a 401 or IRA. Theres big opportunity there, too. If you had a $35,000 annual income and bumped your pre-tax contributions up just 1%, thats only about $10 off your bi-weekly take-home pay.

    Later, in retirement, that could add up to another $150 per month to spend.2

    What If The Retirement Savings Goal Seems Too Big To Reach

    You can always adjust your goal, and many people do. For instance, instead of retiring at 65, you could work a few more years to save more.

    In addition, look at your spending plans for retirement. Maybe you were planning to travel extensively. Consider reining in your plans slightly, such as focusing on the three trips most important to you. Include those in your retirement budget but give up some of the others. That may allow you to reach your retirement savings goal sooner so you can actually enjoy the travel that means the most to you.

    Also, be sure to add Social Security or any other post-retirement income sources to your savings total.

    Finally, consider adjusting your current budget to free up more money to sock away for retirement. If you can spend less now, you may have more available for a financially secure retirement later.

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    Social Security Pensions And Other Reliable Income Sources

    The good news is that, if you’re like most people, you’ll get some help from sources other than your savings, such as your Social Security benefits. For most people, Social Security is a significant income source.

    But the percentage of income that Social Security will replace is typically lower for higher-income retirees. For example, Fidelity estimates that someone earning $50,000 per year can expect Social Security to replace 35% of their income. But someone earning $300,000 per year would have a Social Security income replacement rate of just 11% on average.

    If you aren’t sure how much you can expect, check your latest Social Security statement, or create a my Social Security account to get a good estimate based on your work history.

    If you have any pensions from current or former jobs, be sure to take those into consideration. The same goes for any other predictable and permanent sources of income. For example, if you bought an annuity that kicks in after you retire, or youre tapping your home equity through a reverse mortgage.

    Continuing our example of a couple that needs $8,000 in monthly income to retire, let’s say each spouse is expecting $1,500 per month from Social Security, and that one spouse also has a $1,000 monthly pension.

    This means that, of the $8,000 in monthly income needs, $4,000 will come from guaranteed income. The remaining $4,000 will need to come from sources such as investments and savings.

    How Much Do I Need To Retire

    3 Signs You’re Saving TOO MUCH For Retirement!

    How much you need to retire depends on how much you plan to spend in retirement. How much will you want to shell out on travel? What about saving for medical expenses? These considerations and more make planning your retirement paycheck difficult for many people, especially when theyre decades from retirement.

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    How Long Do You Want To Plan For

    Obviously you don’t know exactly how long you’ll live, and it’s not a question that many people want to ponder too deeply. But to get a general idea, you should carefully consider your health and life expectancy, using data from the Social Security Administration and your family history. Also consider your tolerance for managing the risk of outliving your assets, access to other resources if you draw down your portfolio , and other factors. This online calculator can help you determine your planning horizon.

    How Much Do I Need To Save To Retire

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

    That means if you make $100,000 annually at retirement, you need at least $80,000 per year to have a comfortable lifestyle after leaving the workforce.

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

    Order your copy of the print edition of Investopedia’s Retirement Guide for more assistance in building the best plan for your retirement.

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    Stay On Track For Retirement By Knowing How Much You Need To Save By What Age

    Investopedia / Sydney Saporito

    A key part of retirement planning is to answer the question: How much do I need to save to retire? The answer varies by individual, and it depends largely on your income now and the lifestyle you want and can afford in retirement.

    Knowing how much you need to save based on how old you are now is just the first step, but it starts you on the path to help you reach your retirement goals. There are a few simple formulas that you can use to come up with the numbers.

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