How Much Do I Need to Save for Retirement?

Vault’s Viewpoint on How Much You Should Save for Retirement

• Your retirement savings goals depend on your lifestyle. Consider your priorities during retirement and estimate how much money you need to retire to meet your needs.
• Retirement savings by age estimates can help you plan. While rules of thumb aren’t set in stone for everyone, using an estimate provides a target that you can use to decide how much to set aside.
• There are tools available to help you catch up. If you feel like you’re behind with your retirement savings goal, evaluate your budget and consider catch-up contributions to boost your nest egg.
• Stay informed. Look for ways to maximize your retirement savings and stay up to date on relevant news such as Social Security cost-of-living-adjustments.

Retirement Savings Statistics

• On average, Americans believe they will need $1.46 million to retire (Northwestern Mutual).
• About 31% of Americans aren’t sure if they will have to retire, and 33% of those who say they won’t have enough to retire at their current savings rate are above the age of 50 (AARP).
• Rising costs in retirement are a major concern for 87% of Americans (National Institute on Retirement Security).
• Half of retirees say they retired earlier than expected, with nearly 70% saying the reason was out of their control (Employee Benefits Research Institute).
• Nearly one in five Americans has used retirement funds to help pay for emergencies (Employee Benefits Research Institute).
• Most Americans think that policymakers should focus on retirement issues, with 87% believing that Congress should take steps to shore up Social Security (National Institute on Retirement Security).

How Much Do I Need to Retire?

Deciding how much money you need to retire depends on various factors based on your individual circumstances.

When You Want to Retire

Your target retirement age has a big impact on how much money you need to retire. The younger you plan to retire, the more money you need to save up to meet your needs. If you plan to retire later, you can probably manage with a smaller nest egg because you won’t need to live on it for as long.

Your Desired Retirement Lifestyle

Figure out what you want your life to look like in retirement. If you know you’ll downsize, move to a less expensive state or spend less, you don’t need as much for retirement. On the other hand, if you think you’ll travel a lot and you want to engage in expensive hobbies, you need a bigger nest egg to live your best retirement life.

Current Retirement Savings Rate

Look at your current savings rate and consider using a retirement calculator to determine how much you’re likely to have when you reach your target retirement age. Depending on the situation, you might not be saving enough to reach your goal. If that’s the case, you might need to save more money for retirement and plan how you’ll make up the shortfall.

Retirement Savings by Age

Looking at the average retirement savings by age and the median amount that households have saved for retirement can give you an idea of how much others have saved for retirement—and determine whether these savings by age reflect your needs.

When calculating how much you have saved for retirement, consider accounts that you plan to draw on during retirement, including:

• Employer workplace plans, such as 401(k)s, 403(b)s and other accounts
• IRAs, including Roth and SEP accounts
• Health Savings Account (HSA) funds that you expect to invest and that you’ll use for healthcare costs in retirement
• Taxable investment account balances that you plan to use in retirement

When deciding how much you should have saved for retirement based on your age, consider your desired lifestyle and when you hope to retire. You might need to accelerate your savings if you want to retire earlier.

What Should I Have Saved by Age 35?

The average household led by someone aged 35 to 44 has $141,520 saved, while the median savings is $49,000. That’s a big difference since an average includes outliers, including those who save much more than others in the age cohort.

Retirement account provider Fidelity offers a different approach to deciding how much you should have saved based on your salary. At age 35, Fidelity’s rule of thumb suggests that you should have twice your starting salary saved. So, if you’re making $40,000 a year, you should have $80,000 saved.

What Should I Have Saved by Age 50?

By age 50, you should be approaching retirement within the next 10 to 15 years, depending on your target. As a result, you likely need a much bigger number saved. Compounding returns should have helped accelerate your nest egg’s growth if you’ve been consistently investing for retirement.

Fidelity suggests having six times your salary saved by age 50. So if you’re making $75,000 a year at age 50, you might aim to have $450,000 in your retirement account.

What Should I Have Saved by Age 60?

Remember that projections for retirement savings suggestions are based on the assumption that you’ll see salary increases over time and that you’ll increase your retirement account contributions. By age 60, you should be close to your target retirement nest egg, especially if you plan to quit work by age 62 or 65.

If you aim to save at least the average that households have by that age, targeting at least $500,000 might make sense. On the other hand, if you use the Fidelity guide, targeting eight times your salary could potentially get you closer to your ideal number.

How to Save for Retirement: 5 Steps to Take

As you prepare for your golden years, there are steps that make it easier to save for retirement.

1. Decide How Much You Really Need to Retire

Start with an estimate of how much you need to save. Review your expenses. Determine which expenses are likely to go up, stay the same or go down during retirement. Consider whether you’ll have new expenses if you travel or start a hobby.

Consider rules of thumb when deciding how much money you need to retire, such as assuming you’ll need 80% of your current income during retirement. A quick way to estimate the target size of your nest egg is to figure out how much you need each year and divide it by 4%.

For example, if you make $55,000 and need 80% of that in retirement, that’s $44,000. Using the 4% rule for annual withdrawal, you’ll need $1.1 million saved in your retirement investments to generate your annual needs.

Depending on your lifestyle goals, your nest egg might need to be bigger or smaller. Adjust accordingly based on your expectations and objectives.

2. Use a Retirement Calculator to Determine How Much to Set Aside Each Month

Once you have an estimated target, a retirement calculator can help you determine how much you need to invest each month to reach your goal. If you think you need $1.1 million and you want to retire in 30 years, assuming 8% annualized returns, you’d need to invest about $850 per month.

3. Start Small

You might not be able to start with the total monthly amount you want to invest for retirement. It’s ok to start small. The earlier you start, the more time you have to grow your portfolio. Some ideas for starting small include:

• Set aside what you can each week, transferring it to a tax-advantaged retirement account automatically
• Have at least 1% of each paycheck invested in your employer’s retirement plan
• Try to max out your employer’s match if available; that’s free money for your future

Make sure you invest your contributions. Consider a target-date mutual fund or a broad-based index fund for your investments to take advantage of overall market gains rather than trying to beat the market.

4. Increase Your Contributions as Your Financial Situation Improves

As you receive raises and your financial situation improves, boost your contributions. Consider automatically increasing your paycheck withholdings. When you receive a windfall or get a raise, put extra money in your retirement account.

Over time, as you increase your contributions, your portfolio balance will grow faster.

5. Tweak Your Plan as Needed

Review your portfolio regularly and adjust your contributions and investments as needed. Getting help from a financial professional or advisor can help you stay on track even when life becomes unexpected.

3 Ways to Catch Up on Your Retirement Savings When You’re Behind

If you’re behind on your retirement savings, it’s possible to start catching up. Investing is one of the best ways to boost your retirement portfolio. An AARP study indicates that adults who feel their financial situation has improved are those who have seen investment gains.

Here are three ways you can increase how much you’re investing so you can catch up:

• Max out tax-advantaged retirement accounts. If you have room in your budget to max out your 401(k) and IRA, you can reap the benefits of tax-efficient growth on more of your money.
• Use catch-up contributions. For those over the age of 50, it’s possible to contribute extra to your tax-advantaged accounts. If you have the available money, use these catch-up contributions to build your portfolio in the final years of your career.
• Open other investment accounts. Don’t forget about other investment accounts. There are other possibilities if you’re behind and maxing out your retirement accounts. Max out an HSA if you’re eligible to make contributions and invest the money. Consider using taxable accounts as well.

The more money you can invest, the faster you’ll catch up.