What Percentage of My Income Should I Save for Retirement?

How much you need for retirement varies, but in general, you want to replace 80% of your pre-retirement income.

While most retirees will receive at least some Social Security retirement benefits, it’s typically not enough to support them through all the years of retirement. That’s why experts recommend saving at least 10-15% of your pre-tax income each year. However, how much you need to save for retirement ultimately depends on the type of lifestyle you want to live while retired, what your current and planned expenses will be, your life expectancy, and other factors.

Even though much of this is unknown, having a rough plan can help you figure out how much you need to save, and prepare in advance for finances in retirement. Here are three steps for figuring out how much you need to save, and other important factors to consider.

How to calculate the percentage of income you should save for retirement

You should save as close to 15% of your annual salary as you can and aim to replace at least 75-80% of your pre-retirement income in retirement. However, there’s no one-size-fits-all answer, so here are a few steps to calculate how much of your income you should save.

1. Start by estimating your future financial needs

While this step takes work, and even some guessing, it can help you figure out how much you’ll need to put away today to live comfortably in your later years.

Start by calculating your current monthly expenses, including mortgage/rent, groceries, transportation, entertainment, utilities, and others. As you write each down, think about how they may (or may not) change when you retire. For example, are you thinking you’ll downsize, so your mortgage will be cheaper? Because you’ll no longer be commuting to work, your gas and vehicle expenses will decrease? Write down your estimates for these expenses in retirement in another column or on another page.

Next, think about things you aren’t doing now that you will once you retire, or things you’ll be doing more of. For example, perhaps you want to travel more, play more golf, take lessons or start a new hobby, or purchase a vacation home. Add these estimated expenses to your “retirement monthly budget.”

Calculate a monthly total for your estimated retirement expenses. Then, multiply that by 12 to get an idea of how much income you’ll need each year to meet those expenses. Compare that to your current income, and this will allow you to calculate how much of your income you should aim to replace in retirement.

Related readingHow Much Should I Save for Retirement?

2. Listen to the experts

Experts typically recommend saving between 10% and 15% of your pre-tax income for retirement, either in a 401(k), 403(b), Roth IRA, or similar retirement account.

If you want to know how much to have saved as you age, experts suggest saving at least:

  • 1x your salary by age 30
  • 3x your salary by age 40
  • 6x your salary by age 50
  • 8x your salary by age 60
  • 10x your salary by age 67

Again, this can be higher or lower based on your estimated retirement expenses but can be a great place to start. If you’re behind, don’t worry. There are a variety of ways to catch up, but the most important thing is to start saving as soon as possible.

If you haven’t calculated your estimated retirement expenses, you can also stick to the common rule of thumb that says you should aim to replace 80% of your preretirement income. For example, if you make $100,000 per year as you near retirement, you want to be able to replace $80,000 per year. Not all of this must come from savings, as some will likely come from Social Security or other sources, but you may even want to aim for a larger percentage depending on your individual needs.

In the meantime, you can follow the 50/30/20 rule. This states that at least 20% of your income should go toward savings, 50% (max) should go to necessities, and 30% can go toward discretionary items. This can help you better budget your money, and you can easily take a percentage of your savings and put it toward retirement.

Related readingWhat Is the Average Retirement Savings by Age?

3. Use a retirement calculator

There are many different retirement calculators online that can help show you if you’re on track for retirement, what your savings goals should be, what age you can expect to retire based on your current trajectory, and more.

The great thing about these calculators is they consider factors that may be difficult to do manually, such as inflation, salary increases, and rate of return on retirement accounts.

Other factors to consider when saving for retirement

Your anticipated lifestyle isn’t the only thing to consider when deciding how much to save for retirement. It’s important to think about other factors that would require financing such as:

  • Emergencies
  • Health care costs
  • Health insurance
  • Life insurance premiums
  • Funeral expenses (if you plan to leave some behind to pay for a funeral after you’re gone)
  • Inheritance you’d like to leave for beneficiaries
  • Funding a child or grandchild’s education
  • Retiring early
  • Market fluctuations
  • Your tax bracket

These are just a few examples, but with so many considerations, it shows that planning for retirement as early as possible and putting as close to 15% of your income into retirement savings as you can is important.

Ways to stay on track for retirement

Remember, there are ways to make your retirement savings work for you. For example, many employers offer an employer match, which means that they will match the percentage of savings you put into the employer sponsored retirement account up to a certain percent. This could be 1%, 2%, 3%, 4%, or more. If your employer offers a match, be sure to contribute at least that much.

Another way is to consider whether you want to contribute pre- or post-tax funds. If you contribute pre-tax, such as to a 401(k), you’ll have to pay taxes on the withdrawals once you retire. On the other hand, Roth IRA funds are contributed post-tax, so there are no taxes to pay when you withdraw. Contributing funds to an account like a Roth IRA now can help save you money in taxes down the road.

You’ll also want to be sure you’re aware of any fees and/or penalties you could face with your retirement savings. For example, if you make withdrawals before age 59-1/2, you’ll be hit with a penalty fee. Avoid paying these fees by sticking to withdrawal and any other regulations or rules.

Creating and sticking to a budget now, taking advantage of any financial wellness programs or tools available to you, and even meeting with a financial advisor can also help you stay on track.

With planning and saving (starting as soon as possible), you’ll be closer to having enough saved for retirement.

Additional Resources

Eric Ruge
Florida native Eric Ruge lives by one rule: Do the right thing. His goal as a Medicare agent is helping people find the right Medicare coverage for their unique medical needs and budget. He believes everyone deserves the peace of mind they get knowing they made the right decision about their Medicare coverage. When he's not working, Eric enjoys spending time with family and friends, watching Tampa sports, and playing the occasional round of golf.


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