How Much Should You Save for Retirement? Common Guidelines Explained

How much is enough? It’s one of the most common money questions people ask, and one of the hardest to answer. The right amount depends on when you want to retire, how you want to live, how long you’ll live, what Social Security and other income you’ll receive and how your investments perform. There’s no single answer, but a few widely used guidelines can help you see whether you’re on track.

The 15% guideline

Many financial firms, including Fidelity, suggest saving about 15% of your pre-tax income for retirement each year, counting any employer match. For example, if you earn $60,000 and your employer contributes 4%, you would contribute about 11% to reach 15% total.

This guideline assumes you start saving in your 20s or early 30s and plan to retire in your mid- to late 60s. If you start later, want to retire early or want a more expensive lifestyle in retirement, you may need to save more. If you have a pension or other significant sources of retirement income, you may need to save less.

Savings milestones by age

Fidelity also publishes savings milestones as multiples of your salary, offering rough checkpoints for whether you’re on track. Its guidelines suggest having about 1 times your salary saved by age 30, 3 times by 40, 6 times by 50, 8 times by 60 and 10 times by 67.

For example, someone earning $70,000 at age 40 would aim to have about $210,000 saved for retirement, according to these guidelines.

These milestones are rough guides based on certain assumptions about savings rates, investment returns, retirement age and lifestyle. They aren’t rules, and many people don’t match them exactly. Don’t panic if you’re behind; use them as targets to work toward.

The income replacement approach

Another common way to estimate retirement needs is to think about how much of your pre-retirement income you’ll need to replace. Many planners suggest that retirees may need roughly 70% to 80% of their pre-retirement income to maintain a similar lifestyle, since some expenses, such as commuting, payroll taxes and retirement savings, decline in retirement. Others may need more, especially if they plan to travel extensively or face high health care costs.

Social Security replaces part of pre-retirement income for most people, so your savings need to cover the rest.

Why starting early matters

Money invested in your 20s has decades to grow and compound. Compound growth means your earnings generate their own earnings over time, which can dramatically increase your savings.

Waiting even a few years means you’ll need to save more each month later to reach the same goal. Someone who starts saving at 25 can often reach their retirement goal with smaller monthly contributions than someone who starts at 35, simply because their money has more time to grow.

That said, it’s never too late to start. The best time to start saving is now, whatever your age.

Steps to get on track

Contribute enough to your workplace retirement plan to get the full employer match, if offered. An employer match is essentially free money and one of the best returns available.

Raise your contribution by 1% each year or each time you get a raise. Many plans offer automatic increase features. Because you’re increasing contributions gradually, you’re less likely to feel the difference in your paycheck.

Open an IRA if you don’t have a workplace plan or want more investment options. Traditional and Roth IRAs offer tax advantages and can complement workplace plans.

Use catch-up contributions if you’re 50 or older. The IRS allows additional contributions to many retirement accounts for people age 50 and older. Check irs.gov for current limits.

Invest appropriately for your timeline, generally with more stocks when retirement is far away and gradually more bonds as you approach retirement. Target-date funds offer a simple way to manage this.

Keep fees low, since high investment fees can significantly reduce your savings over time.

Avoid early withdrawals from retirement accounts, which can trigger taxes and penalties and reduce your long-term savings.

Personalize your target

Your actual retirement savings target depends on many personal factors: when you want to retire, how you want to live, your expected Social Security benefits, any pension income, your health, where you plan to live and your other assets, such as home equity.

Retirement calculators from your plan provider or reputable financial websites can help you estimate your number based on your specific situation. Reviewing your Social Security estimate at ssa.gov can also help you plan. A fee-only financial planner can create a personalized retirement plan.

Review regularly

Check your progress at least once a year and adjust your savings as your income, goals and circumstances change. Retirement planning is an ongoing process, and small adjustments along the way can keep you on track.

These guidelines are general and aren’t personalized financial advice.