How much do you save for retirement?

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How much do you save for retirement?

By Daniel | July 8, 2008

This question has many answers and they are all slightly different. It depends how old you are when you start saving, at what age you plan on retiring, how long you expect to live once you retire, and the standard of living you want during retirement. The first step is to start saving today if you haven’t already. I’m not going to get into how and where you should invest our money in this article, just how much of your income you should save.

The amount you save each month now depends a lot on your current age and how well you want to live during retirement. You don’t want to eat pet food because you didn’t save enough. That is just a myth since the price of dog or cat food is not necessarily cheaper. As a general minimum for saving based on the assumption you will need 80% of your pre-retirement income, live for an additional 30 years, and your pre-retirement income averages an 8% return is shown below.

Age you start	% per year	Age you start	% per year	Age you start	% per year
22	10%	32	18%	42	30%
23	10%	33	19%	43	32%
24	11%	34	20%	44	35%
25	12%	35	22%	45	37%
26	12%	36	23%	46	41%
27	13%	37	25%	47	44%
28	14%	38	27%	48	48%
29	15%	39	29%	49	53%
30	16%	40	26%	50+	58+%
31	17%	41	28%	Data Source

Another way to look at how large your nest egg should be is to look at the amount you will withdraw each year when you are in retirement. In an article from Parade Magazine they have you calculate how much money you will need each year when you retire. This is hard to do if you are several decades away from retirement, but it does provide a good look at how large you nest egg should be compared to the income you will need. Experts suggest you should not withdraw more than 4%-5% from your nest egg each year to make it last 30 years.

For a detailed way to calculate how much you need to save, there are several online calculators that you can input your information and it will tell you how much money you need to save each month and how long it will last. Some of the calculators are fairly simple and easy to use while others look at several more aspects. Here is a short list of various retirement planners:

To show how important starting early is and the power of compounding interest. This chart below shows the difference when you start early. As an example, if your income is $40,000, and you are 25 years old, then you need to save 12% of your income which is $400 per month. At $400 per month and an average return of 8% on your money, you will have a nest egg of $1,296,722 at age 65.