How Much Should I Save for Retirement?

Perhaps the most frequent question we hear from clients, friends, family and neighbors is, “How much should I save?” There’s no simple answer and many variables to consider. It ultimately depends on how well you want to live in retirement. But your savings rate, which we generally define as investment contributions as a percent of gross pay, is the single most important number in your financial life.

With that in mind, we’ve attempted to provide some rules of thumb on appropriate savings rates based on age and wealth. Our general advice to anyone is Save 10. We believe everyone should save at least 10% of their gross pay for retirement. We don’t take this lightly and know it will be a real challenge for some families to save 10% of their income. But we also know it’s a struggle for retirees to make ends meet on just social security income.

For our high-income clients starting to save in their 30s, we recommend saving 20%-40% of gross pay. Typically, a 20% savings rate will enable you to retire at a “normal” age, a 30% rate will enable you to retire well, and a 40% or higher rate will enable you to retire early. We typically include student loan and consumer debt reduction as part of the savings rate, with the assumption that those payments will go toward retirement after the debt is extinguished.

The recommendations below incorporate many simplifying assumptions. It’s impossible to generalize, but the broad strokes are valid. If you start saving in your 40s, you need to contribute more than if you start saving in your 20s. If you’re lucky enough to have a significant nest egg already, you won’t have to save as much as someone with a more modest balance.

Most importantly, we don’t want these numbers to be discouraging. They’re good targets, but not tailored to your situation. It’s never too late to save and there isn’t a “wrong” amount to save. The most important rule of thumb is to save as much as you can. Your current self needs most of your income, but your future self also needs some love. You will never talk to a 65-year-old who says, “Gosh, I wish I had saved less for retirement.”

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Tim Quillin