How Much Of My Paycheck Should I Save For Retirement


Plan For Medical Costs

How much you should be saving each paycheck for retirement

Safeguard your finances against unexpected medical costs. Some hefty medical bills can quickly eat up a lifetime of savings. A couple in their mid-60s will need $315,000 to cover health care costs in retirement, according to a 2022 Fidelity estimate.

Then theres the stratospheric cost of extended care at nursing homes. A report from Genworth says the median annual cost of a private room in a nursing home was $108,405 in 2021.

With that in mind, retirement planning must include some consideration of future medical costs. One option is long-term health insurance, which pays for extended medical care, including such things as nursing and assisted living but it can be expensive.

It has to be easily affordable not just for today but for the whole premium period, says Marilee Driscoll, founder of Long-Term Care Planning Month, a public-awareness effort that takes place during the month of October.

What If I Just Cant Save That Much

Dont stress. Saving something is better than nothing.

I can already hear the shouts from the comments: How ridiculous! I spend almost everything I earn on rent, food, and transport! This website is out of touch with its audience!

Okay, okay. If the 20% scenario I just sketched out doesnt fit your individual situation, then please dont think that Im saying youre a failure. As I said, I believe everyone should aim for 20%, not that everyone can hit that target on their first try.

Start small. Start with 1%. When that doesnt sting so bad, go up to 2% or even 3%. Maybe you hit 5%, and that feels pretty good. Maybe you take a crazy leap for 10%, and that leaves you stressed and strapped, so you scale back. Its a process, a literal give and take.

Through it all, keep that 20% goal in mind. Itll keep you from getting complacent. Whenever you get a raise, raise your saving rate! You were doing fine without that money before, and you shouldnt miss it if you never get used to having it.

Finally, if youre in debt, you might already be saving more than you think. Thats because paying down debt is essentially saving in reverse.

Think of it this way: One day, youre debt free. But youve been making big monthly payments to your debts for years. If you suddenly begin to save that money, what would your saving rate be?

The trick here is to not replace that car payment or credit card bill when you pay it off.

Related:How to Get Out of Debt on Your Own

Age : The 3x Recommendation

Both Fidelity and Ally Bank recommend having three times your annual salary put away for retirement at age 40. If you don’t have a retirement savings strategy as part of your overall financial plan by this point, don’t delay, one expert said.

“Every household, regardless of their net worth or stage of life, owes it to themselves to create a comprehensive, individualized financial plan,” said Drew Parker, creator of The Complete Retirement Planner.

Also Check: How Much Do Retirement Homes Cost Per Month

And Then Move On To Your Other Goals

Once your retirement savings are on track, its time to broaden your sights:

  • Emergency fund: Make sure you have enough cash set aside to cover three to six months worth of nondiscretionary expenses. Keep this money in a savings or other liquid account. You wont earn a lot of interest, but you will be increasing your financial security.
  • A child’s education: If you have kids, I recommend considering a 529 plan to shelter investment gains and income from taxes. The amount you need to save will depend on your income and the type of college you envision.
  • The down payment on a house: A more near-term goal for many people is buying a home. Given todays real estate market, this is not an easy task. To get the best mortgage rates, aim to save a minimum of 20 percent of the purchase price.
  • Other goals: If you have other goals , put those on the list as well. Determine the amount you want to save by a particular date, and back out the math.

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How Much Of My Paycheck Should I Save

10 Min Read | Jun 27, 2022

How much of my paycheck should I save?

Sound familiar? Youre not alone if youve ever sat around and wondered that. A lot of people arent sure how much of their paycheck they should save each month. But its not a cut-and-dried answer. It all depends on your money goals and what matters to you.

A lot of people arent making saving a priority these days78% of Americans live paycheck to paycheck.1 But if you can put some money into savings, you can keep yourself from falling into that paycheck-to-paycheck trap.

Saving For Retirement In Your 60s

Retirement is around the corner in your 60s, and the times almost come to enjoy the money youve worked so hard to save. Consider shifting to capital preservation and income-generating investment strategies. These fixed income investments tend to be stable bonds or fixed annuities aimed to keep the money youve saved over the years safe.

As youll most likely be entering the last of your full-time working years, youll want to keep saving as aggressively as you can.

Emergency fund: Consider upping your cash savings to one years worth of living expenses, so you have more cash on hand for things like medical expenses.

Additional savings: Review your risk tolerance and investment strategy with an eye toward capital preservation. Financial advisors may be particularly helpful now in helping you figure out how to handle the asset allocation of your retirement funds.

Educational savings: If you have children still in college or grandchildren whose college youd like to help out with, you can continue contributions to 529 accounts.

Retirement savings: Make sure youre contributing as much as you can before you retire. By the time you turn 67, you should have 10 times your annual salary in retirement savings.

Catch-up tips: Even after retirement, there are always part-time jobs that can supplement your income as you adjust to living on your savings and Social Security income.

Read Also: City Of Los Angeles Retirement Benefits

How Much Of Your Paycheck Should You Save Each Month

Youve always heard its important to save as much as you can, but what does that really mean? Realistically speaking, saving can be hard once your paycheck hits your bank account. Bills, necessities, and extra wants may slowly diminish your hard-earned check. If you struggle with paying into your savings first, youre not alone.

It turns out, 59 percent of Americans live paycheck to paycheck, and 65 percent dont know how much they spend on a monthly basis. Yet, for those who always preach the value of saving, how much of your paycheck should you save?

Setting your savings goals too high could deprive your emergency funds and other savings accounts, yet saving too little could hinder your investments. If you want to retire early, start your own business, or buy a house, your savings account is a key ingredient.

To find your ideal savings goal, keep reading or skip to one of these sections:

Open A 401 Plan And Ira Savings Account

Should I Pay Down My Mortgage Or Save For Retirement?

Both 401 plans and IRA accounts can help you put aside money for your retirement with no tax on the interest and earnings over the year. The 401 is a type of employer retirement account while the IRA is an individual retirement account. This means that the first are offered by employers, who may match part or all of your contributions, while the second is established without an employer’s involvement. Do you think you are too old to open a 401 plan or IRA account? Think again! As long as you dont feel too old to work and have earned income, you should know that there is no age restriction to open either of these retirement savings accounts.

Read Also: What Should I Do With My 401k After I Retire

Where To Start When Saving For Retirement

With several tax-advantaged options at your disposal which should you choose? Heres how experts recommend that you proceed:

  • Get any 401 match: This employer-sponsored plan should be your top choice if your employer offers any kind of matching funds when you contribute money to the account. An employer match is the easiest, safest way to make money and you should take full advantage of it. Only once you receive this free money should you consider investing in an IRA.
  • Max out your IRA: Turn to the IRA if youve maxed out your 401 match or if your employer doesnt offer a 401 plan or a match. Experts favor the Roth IRA because of all its perks.
  • Then max out your 401: If youve maxed out your IRA and youre still able to save more, you can turn back to your 401 and add more up until the maximum annual contribution.
  • Taxable accounts: If youre able to save even more, then you can add money to a taxable account, perhaps a brokerage account or bank account.
  • This ordering of your accounts helps you secure a guaranteed return from the employer match before you turn to perhaps the best available retirement account in the Roth IRA. So you secure the best perks of these accounts first.

    Example: How Much You Need To Save Each Month If You Start To Save For Retirement Early

    Suppose you plan to retire in 20 years. You want to save $75,000 for your retirement. You’re earning an annual interest rate of 5% compounded on your savings.

    Compare how much you’d have to save each month if you start to save now or in 10 years. When you have 20 years to save instead of 10 years, you have to put $14,160 less into the bank to reach your goal. This is because you earn more money in interest the longer you save. In this example, you earn $14,020 more in interest when you have 20 years to save than when you have 10 years to save.

    Table 1: Compare how much you’d have to save each month if you start to save now or 10 years

    Years you have to save How much you need to save per month Amount saved

    Note: the numbers are calculated using the Ontario Securities Commissions Compound Interest Calculator.

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    Why Saving For Retirement Is A Challenge For Most Americans

    The retirement age in the U.S. has been increasing over the past decade. The average retirement age is 62 for those who are already retired, the expected age for current workers to retire is 64, and for those born after 1959 it is as high as 67.One out of three Americans isnt confident that theyll have enough money to be comfortable in retirement and one out of 12 believe theyll never retire at all.

    However, since we live on average for around 20 years more after we retire, its crucial that we find the answers to our questions such as: How much should I save for retirement? What is the best way to do it? How much retirement savings should I have at 30 or 40 years old? Why is saving for retirement so important?

    From examining reliable data and statistics about retirement, we see that the system has its discrepancies, and many Americans still have varying challenges to face and overcome:

    We know we cant change any of those statistics overnight, even less just by writing an article addressing how much of your paycheck you should save. However, we’re still here to help you improve your current situation by giving you actionable tips and answering some of the most common questions about retirement.

    Smart Tools And Strategies For Savers Of All Ages

    How Much Should I Have In Retirement at 35 Years Old?

    Fast answer:

    • Smart savings tools like Ally Banks Buckets, a feature of our Online Savings Account, let you easily set goals, organize your savings and keep track of your priorities.
    • Microsaving can help you reach your savings targets even faster.
    • When in doubt, consider automating your savings with recurring transfers or direct deposits.
    • Use budgeting templates to help keep track of your spending each month.

    Prioritizing and staying organized can keep you from stressing over not saving enough for all the things you want to do with your money. If youve got a plan forsaving for multiple goals, it reduces the chance that something slips through the cracks.

    For example, say you want to adopt a dog a year from now and purchase a home three years after that. You can afford to save $800 a month toward both items. In this instance, you might sock away $100 each month for puppy preparation and $700 for the down payment on a house. After you adopt your new fur-ever friend, you can redirect that $100 over to your home savings fund.

    The buckets tool in the Ally Bank Online Savings Account helps you organize your savings into separate digital envelopes and set specific goals for each, eliminating the need to open multiple savings accounts to track your progress.

    Expert tip: Set yourself up for financial success by finding the budgeting style that works for you and using our easy-to-use budget templates.

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    Where Should I Keep My Savings

    Different savings goals may fit different savings accounts. For short-term savings goals, consider keeping your money in a high-yield savings accountto help maximize your contributions while remaining flexible, if you need the funds in a pinch.

    Ready to start building your savings even faster? Open aHigh-Yield Savings Accounttoday with Chime. Chime offers a high-yield savings account to help you make your money grow faster, with a 8x¹ higherAnnual Percentage Yield compared to traditional banks.

    How Should I Split My Paycheck Into Savings

    Now you know how to figure out how much you should save from each paycheck. But you may be faced with the question “how should I split my paycheck?” Well, it’s important to separate your savings into different accounts so you can be sure you are on track for each savings goal you have.

    For instance, if you’re saving $100 a paycheck, you would split that amount amongst your accounts. It could be $20 for each category or split up in different amounts depending on which one you are trying to build the fastest.

    Here are the main types of savings you should be splitting your paycheck into:

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    Retirement Savings By Age: How Much Money Should You Have Saved At 20 30 40 50 Or 60

    How much money do you need to have saved in your 20s, 30s, 40s, or 50s if you want to retire comfortably?

    While a magic number for each stage of your life is great for assessing your preparation, predicting your retirement income using a rule of thumb is not as straightforward as youd like.

    Several factors can impact how much you need to retire, a few of which include your:

    • Housing situation: will you carry a mortgage or have paid off your home?
    • Lifestyle: if you plan to travel the world in retirement and take expensive vacations, you will need to save more.
    • Retirement Age: are you retiring at 55 or 65 years? Early retirement means more money is needed.
    • Government Pensions: how much and how many government benefits will you qualify for? After deducting the OAS and CPP, your income shortfall will come from your retirement savings or workplace pension.
    • Health Status: if you have significant health challenges, you may have to spend more money than previously planned.

    What these factors tell us is that you should build some flexibility into your retirement plan. And, you should have a plan.

    A pollconducted by RBC in 2018 showed that while Canadians had a retirement savings number in mind, 48% of them did not have a financial plan in place to reach their goal.

    How much retirement savings should you have based on your age? Read on to learn more.

    67 years 10 × income

    At least 10% of your income should be invested in the financial markets.

    How Long Will It Take

    How Much Should I Be Trying To Save Each Paycheck? (Money In A Hot Minute)

    The chart below shows how long it will take you to amass 25 times your expenses based on the percentage of after-tax income you save. This assumes an 8% average annual return, which is quite realistic based on how diversified investment portfolios have historically performed over long periods of time.

    % of income saved
    90% 15 years

    As you can see, That means a 30-year-old who starts saving today will hit this target by age 60.

    But the more you limit your expenses, the sooner youll achieve your personal savings goal. Living a more modest lifestyle both reduces the overall amount of money youll need for retirement and allows you to save more during your working years.

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