How much should I be saving towards retirement?

Photo by Max Harlynking on Unsplash

It is common to evaluate your finances and wonder whether we are saving enough for retirement, whether we will have enough money to retire when we want to retire. In this article, you will find an easy to breakdown listing of approximately how much you need to save to achieve your goals.

Before we get into the meat of the article, I would recommend maxing out any matching your company does regardless of your retirement savings goal. Also, I recommend starting to save what you can as soon as you can.

The critical thing with retirement planning is just starting. So even if you are only putting away $5 per paycheck, it will begin the process for you and make it that much easier to put in $10 eventually, then $20, then $30, etc. No matter where you are in the process, start saving now.

It is important to note that you should consult a financial professional for any specifics for you. This is simply a high level overview to give you an idea of what to do to start.


  • You want to retire at age 65
  • You have nothing saved for retirement yet
  • You make $60,000/year
  • You want to be able to spend $4,000/month
  • You are investing 100% of your retirement funds into the S&P 500 Index, averaging 8% per year return
  • You will save the same percentage of your income throughout your career
  • You are either saving in tax-free/tax-deferred accounts or paying taxes from your other accounts
  • You need $1,200,000 to be able to retire without worrying about money (the 4% rule)

The 4% rule:

When running the numbers for how much money you need to have saved for retirement, a good rule of thumb is to take your expected annual spending and divide it by 4%. This allows you to account for inflation by withdrawing 4% of your investment balance each year and allowing any additional growth to cover the cost of inflation.

This gives you a sustainable number that will theoretically allow you to live off your money for as long as you live, making it such a universally accepted figure to use as a base for your planning.

Before age 20

If your goal is to save all of the money you need to retire using this scenario before you are 20 years old, you need to have an account balance of approximately $34,000 by your 20th birthday. This would allow you to retire at 65 with over $1,200,000 saved without putting another dime into your retirement accounts.

At age 20–5%

When you are 20 years old, you can set yourself up for a great retirement without having to make any significant spending changes in your life because you will only need to save approximately 5% of your income. Anything you save beyond that will improve your financial picture when you are older, allowing you to reduce savings if needed or retire earlier than planned.

This is why it is so vitally important to put money away early in life.

At age 30–11%

Once you are 30 years old, you will need to save a little over double what you needed to put aside when you were 20. The reason for this is that you will be missing out on those ten years of compounding that you would have gotten when you were younger.

At age 40–25%

Once you are 40 years old, you will need to save around 25% of your income to achieve your goal. You can see how these numbers start to scale much higher as you get older and lose those years of compounding.

At age 50–70%

Once you reach 50 years old, it is worth starting to consider lifestyle changes that can lower the amount of money you need to save by reducing your monthly expenses. Alternatively, you can jumpstart your retirement savings by selling things lying around the house you are not using.

It takes a unique personality to save over half of their income each month, and you need to decide if you have that personality and are willing to make those sacrifices.

Wrap up

It is crucial to save as much as you can as soon as you can to provide the best possible retirement for you. I like to tell my clients to save until it hurts, and then back off slightly. If you follow this advice, it will provide you the flexibility to possibly reduce your savings when you are older and need to pay for college education or other big-ticket items.

From the chart below, you can see that significant growth happens later on because of the power of compounding. Don’t worry if your account seems small now; just focus on continuing to save and work your plan.

Chart courtesy of the author



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John Allen

John Allen

Bringing clarity and understanding to financial and business topics.