How Much Should You Save for Retirement?

The standard used to be 10-15% of your income should be saved for retirement. That still might be a reasonable standard if you start early enough, your investments perform well, and you’re confident that Social Security will provide a healthy boost to your retirement income.  There isn’t really a one size fits all standard on how much you should save for retirement. Many different factors come in to play such as how early you start saving, how much you plan on spending in retirement, what returns you’ll get on your investment, how long you’ll be retired, and so on.  Since I didn’t start saving until age 39 and don’t have much confidence that I’ll receive a full benefit from Social Security I need to save more than 10-15% of my income.

I made approximately $12,000 last year and invested $4,000 in my Roth IRA.  That is a savings percentage of 33% of my income.  That isn’t bad but I still need to increase my income or savings percentage or both if I want to retire.  I’d like to retire before I’m 50.  I’ll be 41 this month which only gives me nine years to save enough money.  That makes my goal a longshot but I have some ideas how to make it more probable that I’ll share in another post.  My total invested in my IRA will most likely be smaller this year but my savings percentage will likely be about the same.

I see some people that save much larger percentages of their income.  These are usually people with much larger incomes than me.  I’ve developed another way of measuring percentage of income saved that levels the playing field somewhat between large and modest incomes.  I look at what percentage of income above the federal poverty level was saved for retirement.  The federal poverty level for 2008 for one person is $10,400.  My income was $12,000 and I saved $4,000 so my savings percentage was over 100% of my income above the federal poverty level.  I don’t think there are a lot of people matching that although I’m sure there are some.

In summary how much you should save depends on your circumstances.  In my opinion you should save at least 20% of your income and if you want to retire early you should save much more than that.

13 thoughts on “How Much Should You Save for Retirement?”

  1. I am really torn over the whole issue of retirement after reading “The 4 Hour Work Week”.

    Personally, I’m planning to have my mortgage paid off by age for and then enter a semi-retirement for the following 40 years.

  2. I still think that savings relative to expense level is the best way to measure savings rate e.g. someone making 100k might spend 90k. That’s 10% relative to expense but almost 100% relative to poverty level. However, I think it would be very challenging to someone used to a 90k consumption level to scale down to 10k because someone who spends that much are just not very good at handling money efficiently.

  3. DGI- You have a good point. I probably shouldn’t have returned to school. At this point I feel like I should finish it though. I hope to not have another job when I retire but I plant to still make money outside of a job like I do now.

  4. I’m currently saving in that 10-15% range…but I’m only 24. I’m also only counting on having money for standard retirement age(65) on. In about 5 years after purchasing a house, I’ll begin saving for early retirement.


Leave a Reply