When developing a retirement timeline, the most important question you may be asking yourself is, How much money is enough to retire?” While everyone’s retirement needs and goals differ, there are some guidelines to follow as you save for your golden years.
In this guide, you’ll learn how much you should be saving toward retirement every year when you should begin saving, what your savings target should be at every age, and how to catch up if you’re behind. Your golden years are calling — it’s time to make sure you’re financially ready to answer. Let’s dive in!
Key Takeaways
- While everyone’s retirement needs vary, there are some guidelines to help you determine how much to save for retirement, factoring in inflation, living expenses, healthcare, and longevity.
- Knowing how much you should have saved by certain key ages can help keep your savings goals on track.
- Begin saving for retirement as early as possible to leverage the power of compounding interest, and be sure to take advantage of retirement savings catch-up strategies later in life.
How Much Do I Need to Retire?
While everyone’s retirement needs vary, you generally need about 80% of your highest annual salary during retirement to maintain your standard of living. For example, if you have a $100,000 pre-retirement annual salary, then you should plan on having an annual retirement income of $80,000 (plus annual inflation adjustments).
Saving enough money to maintain 80% of your pre-retirement salary after you retire requires diligent planning, saving, and investing. Read on to learn how much you should be saving to meet your retirement goals.
How Much Money Should I Be Putting In Retirement Every Year?
Saving for retirement can be challenging. After all, you want to save enough to make sure you can live comfortably later in life, but you may be experiencing present-day financial pressures competing for your time, attention, and resources. Of course, it’s important to save as much as you can, but if you’re constantly asking yourself, “How much money do I need to retire comfortably?” then having a quantifiable number can help you find out if you’re “on track” to retire comfortably.
To understand just how much money you need to save every year, you need to know where you’re headed. Here’s how you can decide what your ideal — and realistic — retirement could look like and how to determine your annual savings goals to get you there.
Step One: Picture Your Dream Retirement
Start by imagining how you want to live when you’re not punching the clock anymore. Do you see yourself traveling the world? Trying new hobbies? Simply enjoying more time at home? This vision will give you an idea of the kind of lifestyle you’ll want in retirement.
Step Two: Estimate Your Retirement Expenses
Once you have your retirement daydream in focus, think about how much it might cost to live that lifestyle. Consider things like:
- Housing
- Healthcare
- Food
- Entertainment
- Transportation
- Other living expenses
This can give you an estimate of how much money you’ll need every year.
Step Three: Choose Your Retirement Age
The age at which you decide to retire can greatly impact how much you need to save. Planning on retiring early? You’ll need more money to cover the extra years. Alternatively, working a bit longer might give you more time to save up, reducing the annual amount you need to quit working altogether.
Step Four: Calculate Your Goal
You can use an online calculator to calculate your estimated expenses and retirement age to help you determine a rough total savings goal. Here are some retirement calculators you can use:
As you calculate your goals, keep in mind the 4% Rule: retirees should plan on withdrawing around 4% of their retirement savings during their first year of retirement, then adjust the withdrawal rate every subsequent year for inflation. Withdrawing 4% should, in theory, last you for at least thirty years–so long as you can sustain yourself on this limited drawdown.
Expenses to Keep in Mind for Retirement Planning
Dreaming about retirement can unlock long-awaited visions for the future. To help those dreams come to life, it’s important to consider the full spectrum of potential expenses that may come your way. Beyond the basic living expenses, remember to factor in the following practical financial obligations to determine how much money to retire.
- Inflation. Unfortunately, what seems like a substantial sum today might not stretch as far in the future. When planning for retirement, it’s crucial to account for the increasing cost of living due to inflation. Your nest egg needs to be sufficient to cover your expenses, even as prices rise.
- Healthcare. It’s important to budget for this non-negotiable expense, including premiums, copays, and other out-of-pocket medical costs. Consider purchasing supplemental health insurance to fill any gaps in coverage.
- Longevity. Living longer is a wonderful thing, but it also means your retirement savings need to stretch further. With advancements in medical care and healthier lifestyles, retirees are enjoying longer lives. Your retirement plan should factor in the possibility of a longer life span, ensuring your finances remain stable even as you enjoy your golden years.
- Home maintenance. Maintaining your home becomes even more crucial in retirement. Budget for home repairs and renovations to ensure your living environment remains comfortable and safe.
The 10-15% Savings Rule of Thumb
As you’re calculating your retirement savings goal, keep in mind a rule of thumb that many financial experts suggest: aim to contribute 10-15% of your pre-tax income towards retirement savings. This percentage includes any contributions from both you and your employer.
Whether you’re just beginning your retirement savings journey or you’re on the brink of retirement, it’s always a good idea to consult a financial advisor. They can help you navigate the numbers and provide personalized guidance on how to save for your retirement.
When Should I Start Saving For Retirement?
Saving for retirement is much like planting a tree: the best time to plant a tree was 20 years ago; the second-best time is now. The same wisdom applies to your retirement savings — the earlier you start, the better. Why? The longer your money has to compound, the more powerful it becomes. This is the magic of compounding, a superpower move for your money. The longer your money has to compound, the faster and greater it can grow. Starting early gives your investments more time to snowball, potentially resulting in a larger nest egg when you retire.
While it’s always best to start preparing for retirement as early as you can, here are some practical ways to know if you’re financially ready to begin saving for retirement:
- You have income stability. When your income feels stable, that could be a good sign that you’re ready to start putting money away for the future. Whether it’s your first job out of college or a promotion that brought additional income, stability is a green light to kick-start your retirement savings.
- Your employer offers a retirement savings plan. If your employer offers a retirement savings plan, like a 401(k) or a pension, consider yourself lucky. These plans often come with employer matches, which is like getting free money for your retirement fund. It’s also worth noting that contributing to certain retirement plans can offer tax advantages, reducing your current tax bill.
- You have the ability to start. There’s no such thing as being too early when it comes to retirement savings. Even if retirement seems far off, every year counts. Don’t wait for the perfect moment — start as soon as you can — with as little or as much as you can afford to save — and watch your financial future flourish. Your future self will thank you for your early wisdom and foresight.
Savings Goals For Retirement By Age
Another golden rule experts typically share for retirement savings is the 80% rule: aim for a replacement rate of around 70-80% of your pre-retirement income. This means that your retirement income should ideally cover 70-80% of what you were earning before retiring. This figure takes into account the reduced expenses you might have in retirement (like no longer needing to commute or dress for work) while still providing for a comfortable life.
Since we already know that retirement planning isn’t a one-size-fits-all endeavor, this rule may not work for everyone. To help you gauge where you should be in terms of retirement savings at different stages, here’s a recommended breakdown that experts from Fidelity and T. Rowe Price suggest by age:
| Age | Annual Salary |
| 30 | .5x – 1x annual salary saved |
| 40 | 1x – 3x annual salary saved |
| 50 | 3x – 6x annual salary saved |
| 60 | 5.5x – 11x annual salary saved |
| 67 | 7x – 13.5x annual salary saved |
Sources: Fidelity & T. Rowe Price
No matter where you are in your retirement journey, you can hone in on savings. Here’s a look at how to zero in on your retirement savings during each decade of life to keep you on track for your dream retirement.
In Your 20s: Lay the Foundation
Your 20s are a prime time to start building the foundation of your retirement savings. While other financial goals might be competing for your attention — like spending money on a wedding, purchasing a home, or moving for job opportunities — allocating a portion of your income toward retirement can make a significant difference down the road. Aim to save around 10% of your pre-tax income if possible. Since you have decades ahead, compounding interest will play a substantial role in growing your savings.
In Your 30s: Amp Up Your Efforts
As your income potentially grows in your 30s, it’s a good opportunity to increase your retirement contributions and take advantage of raises or windfalls to boost your savings. If you’ve changed jobs, consider rolling over retirement accounts from previous employers to keep your savings streamlined.
In Your 40s: Stay on Track
By your 40s, you should have a solid grip on your retirement goals. Reevaluate your retirement plan and adjust your contributions if needed. Increase or maintain your retirement contributions, and even make catch-up contributions if your plan allows. Be mindful of any mid-life financial changes, like supporting children or caring for aging parents.
In Your 50s: Catch-Up Time
Your 50s are the last stretch before retirement, so it’s time to make any necessary adjustments. If you’re not on track to meet your savings goals, consider increasing your contributions. At this stage, you can make catch-up contributions to retirement accounts, which allows you to save more than the usual annual limits.
Approaching Retirement: Recalibrate
As you approach retirement age, it’s essential to fine-tune your savings strategy. Evaluate your investment portfolio to ensure it aligns with your risk tolerance and timeline. Since you have fewer years to rebound if the market dips, it may be time to switch to low-risk investments that have a more guaranteed return. Estimate your retirement expenses more accurately, factoring in healthcare costs and potential leisure activities. Adjust your savings plan accordingly to ensure a smooth transition to retirement.
Remember, these are just general guidelines, and individual circumstances can vary. Life doesn’t always follow a linear path, so it’s important to continuously reassess and adjust your retirement savings goals based on your unique situation. Whether you’re just starting out or nearing retirement, the key is to stay proactive and committed to securing your financial well-being in the years to come.
Ways To Save For Retirement If You’re Behind
If you’re finding yourself a bit behind on your retirement savings, don’t worry – you’re not alone, and there are still effective steps you can take to get back on track. Here are some strategies to help you catch up.
Capitalize on windfalls — make every bonus count.
Whenever you receive a raise, bonus, tax refund, or any unexpected financial windfall, consider directing a portion of it straight into your retirement fund. These extra funds can make a substantial difference over time and can help you catch up on your savings goals.
Increase your savings rate.
If your current contribution rate isn’t cutting it, it’s time to rev up your efforts. Aim to increase the percentage of your income that goes toward retirement savings. Even a small increase can accumulate over time, helping you bridge the gap between your current savings and your goals.
Cut back on current expenses.
Consider examining your current expenses more closely and identifying areas where you can cut back. It might mean making some sacrifices in the short term, but these adjustments can free up more funds to funnel into your retirement savings. Think of it as an investment in your future peace of mind.
Sell unneeded assets to streamline your finances.
If you find yourself with assets that no longer serve you – like an underutilized life insurance policy – consider selling or cashing them in. Proceeds from selling your life insurance policy can inject a welcome boost to your retirement savings and help you catch up faster.
Consider delaying retirement to extend your savings window.
While not always ideal, extending your retirement age can provide more time to save. This can also potentially increase your Social Security benefit if you delay claiming until you’re older. It’s a decision that requires careful consideration, but it’s an option to keep in mind.
Bring in an expert for extra guidance.
Remember, the journey to catch up on retirement savings might require some adjustments and sacrifices, but the security and peace of mind that come with a well-funded retirement are worth the effort. Every step you take now brings you closer to a comfortable and enjoyable retirement, regardless of where you’re starting from. If you’re feeling overwhelmed or uncertain about catching up on your retirement savings, seeking advice from a financial planner or advisor can provide clarity. They can help tailor a plan that aligns with your goals and current financial situation.
No matter where you are on your retirement saving journey, remember that every dollar saved today is a brick laid in the foundation of your future contentment. If you want to learn more about how selling your life insurance policy in a life settlement can provide a windfall for your retirement savings, Coventry Direct is here to help. Our experts can help you learn how a life settlement works and how much your policy may be worth. Your retirement dreams deserve to be nurtured and realized, and with thoughtful planning, they can become the vibrant reality you’ve always envisioned.
Coventry Direct does not offer tax or legal advice. This material has been prepared for informational purposes only and should not be relied upon for tax or legal advice. Coventry Direct urges you to consult with your own tax or legal advisors before entering into any transaction.
