Life is unpredictable. It is hard to guess what the future may hold. One thing you can control is how much you set aside for retirement. Having savings can help support a comfortable retirement whether it happens three years or three decades from now.
However, saving is not always straightforward. How you save and how much you save often depends on your age. Determining these numbers can be challenging because there is no single rule for retirement savings. The following general guidelines may help.
Determining Retirement Needs & Wishes
Saving for retirement is a personal journey. Depending on your goals and lifestyle, the amount needed can vary widely. For example, if you hope to spend retirement at home with friends and family and have limited expenses, you may need less than someone who plans to travel frequently.
One of the first things to consider is creating an estimated retirement budget. This can help form the foundation of your retirement strategy. If you are younger, this may feel difficult because retirement could be decades away. Even so, having a general idea of what you may need later in life can help you begin saving consistently.
Some major costs and recurring expenses to consider include:
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Getting a general sense of these costs can help you start building a budget. As the years pass, and especially as retirement gets closer, revisit your budget and adjust your plans if needed.
Our retirement calculator is a helpful place to begin. It can estimate how much you may need to save to retire comfortably. Meeting with a financial professional can also help clarify your goals. They can work with you to build a long-term strategy for budgeting, saving, and spending.
How to Estimate Retirement Income
Once you have an idea of how much money you may spend in retirement, you have a rough estimate of your expenses. The next step is estimating the income needed to cover those costs and maintain your desired lifestyle.
Several common income sources may support retirement:
- Social Security benefits
- Employer-sponsored 401(k) savings
- Individual retirement account (IRA) savings
- Pension plans
- Other investment and savings accounts
Income can also come from other sources. Some people sell their homes and move to a smaller residence. Others may work part time during retirement. Depending on your situation, it may help to review a wide range of possibilities as you approach retirement. Our retirement cost of living calculator can help with this process.
Two common approaches may help estimate how much you may want to have saved by retirement:
- 80% of Your Income: Many professionals suggest estimating about 80% of your current income to cover retirement needs.1 This number can vary based on your expenses. Someone living on a lower cost of living may need less than 80%.
- 4% Withdrawal Guideline: Another approach estimates withdrawing about 4% of your retirement savings each year and adjusting that amount annually for inflation.
Many people often hear that saving $1 million is a typical retirement benchmark. While that amount may work for some individuals, running your own numbers can help determine what goal fits your situation.
What Percentage of My Income Should I Save?
Once you estimate retirement expenses and income needs, you can begin taking steps toward saving.
You may contribute these funds to a 401(k), an IRA, or other investment accounts. Some people divide their savings across multiple accounts, while others focus on one account. Multiply your chosen savings rate by your monthly income to estimate how much you may want to set aside each month.
Another popular framework is the 50/30/20 rule. This method divides monthly income into three categories:
| Category | Examples | Percentage of Monthly Income |
|---|---|---|
| Necessities | Food, housing, utilities, insurance, transportation | 50% |
| Discretionary Spending | Travel, clothing, entertainment, hobbies | 30% |
| Savings | Retirement savings and emergency savings | 20% |
Understanding your expected retirement expenses can help guide your savings rate. Someone with a lower cost of living may require less retirement income than someone with higher projected expenses.
Depending on your age, income, and current obligations, consistently reaching your savings goal may be challenging. Still, saving early allows your contributions more time to grow and potentially recover from market changes.
Investments cannot guarantee growth or preservation of principal value. They may lose value over time, and past performance does not indicate future results.
How Much Should I Save for Retirement in My 20s?
Retirement can feel far away in your 20s, but starting early can make a big difference. Building saving habits now may allow your contributions to grow over time.
Many financial professionals suggest saving an amount equal to 100% of your annual salary by age 30.2 This means you take your yearly income and divide it by 12 to estimate the monthly amount needed to reach that goal.
For example, if you earned $50,000 per year at age 22 and consistently contributed to an IRA, you could have an amount equal to your full annual income saved by age 30. The example below shows how this may look:
- Annual Contribution: $50,000/(30-22)=$6,250
- Monthly Contribution: $6,250/12=$520
If you start your first job, check whether your employer offers a 401(k) or another workplace retirement plan. These plans allow tax-advantaged contributions directly from your paycheck. If your employer offers a contribution match, contributing enough to qualify for the match may increase your total retirement savings.
How Much Should I Save for Retirement in My 30s?
During your 30s, income often increases as careers develop. At the same time, expenses may rise due to events like a wedding, buying a home, or starting a family.
Because of this, it can be harder to stay on track with retirement savings. Many experts suggest having three times your annual salary saved by age 40.2
Ways to increase retirement savings include:
- Increase your 401(k) contributions to qualify for the full employer match if available.
- Add windfalls to savings, such as bonuses or inheritances.
- Gradually increase contributions, such as raising savings by 0.5% to 1% each year.
With several decades before retirement, small increases can add up over time.
How Much Should I Save for Retirement in My 40s?
Many people reach their prime earning years in their 40s, which can provide more opportunities to increase retirement savings. At the same time, expenses may include college savings for children or remaining student debt.
Tracking spending and maintaining a budget can help keep retirement goals on track.
By age 50, many experts recommend having five times your annual salary saved.2
Some people choose to meet with a financial professional during this stage to review their retirement goals. They may help:
- Set a targeted monthly savings amount
- Review potential tax advantages
- Evaluate additional investment or savings options
How Much Should I Save for Retirement in My 50s?
Retiring in your 50's may seem just around the corner. Reviewing your savings progress and adjusting your contributions can help keep your plans on track.
Experts often suggest having seven times your annual income saved by age 60.2
During this decade, you may also want to begin considering:
- Your target retirement age>
- When to claim Social Security benefits
Waiting until your full retirement age or later may increase your monthly Social Security benefit.
You may also be able to increase contributions through catch-up contributions. After age 50, the Internal Revenue Service (IRS) allows higher contribution limits for certain retirement accounts, including IRAs and 401(k)s. Be sure to follow the IRS guidelines, which may change each year.3
How Much Should I Save for Retirement in My 60s?
In your 60s, retirement may be approaching soon, though some people continue working into their 70s.
Your expected retirement age and lifestyle can influence how much you may want to save. Many experts recommend having eight to ten times your annual salary saved by the time you retire.2
If you plan to remain active or expect higher living costs, working longer and saving more may help support those goals. Delaying retirement may also increase Social Security benefits.
This stage is often a time to review retirement plans with a financial professional. They can help:
- Finalize a retirement budget
- Review investment allocations
- Evaluate the timing of retirement based on your financial situation
It's Never Too Late to Start
Life circumstances change, and many people have not saved consistently throughout their careers. Even so, beginning to save now can still support progress toward retirement goals.
Starting with a realistic savings amount and increasing contributions gradually may help build momentum over time. Speaking with a financial professional can also help clarify your next steps and identify strategies that align with your long-term goals.
Sources
- Will Your Retirement Income Be Enough? https://www.investopedia.com/retirement/retirement-income-planning/.
- Savings by age: How much to save in your 20s, 30s, 40s and beyond. https://www.ally.com/stories/save/savings-by-age-how-much-to-save-in-your-20s-30s-40s-and-beyond.
- COLA increases for dollar limitations on benefits and contributions. https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions.
