How Much Should You Save For Retirement?

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Retirement planning can seem like an arduous task, especially when it’s in the distant future. A simple search online for “how much should I save for retirement” could easily leave someone shocked at the size of the number. The amount you’ll need for retirement varies, but the number is often not small.

Your expenses in retirement will dictate a lot of this, but do you want to live on beans and rice in your golden years? Probably not. You want to be able to enjoy perhaps the freest period of your life without being limited by your finances. You want to do well enough financially to be able to leave your children and grandchildren something that can help their futures too. 

Taking all of these goals into account, the importance of saving up enough for retirement begins to become clear. This is not something to wait until your 40s or 50s to begin taking seriously, but something to start thinking about as soon as you enter the work force. 

Saving for retirement in a well thought out and timely manner will serve you for decades to come, both now and later. The all-important question must be asked though, “how much do I need?” Well, read on and find out. 

Start Saving Today

A very important tip to start with your retirement planning is to start saving today. You may be reading this when you’re still in your twenties, and then you’re asking yourself, “Seriously? Start saving now? I’ve got a long way to go until my retirement!” Yes, it pays to start saving for your retirement today. In fact, financial experts are all unanimous in the thought that there’s no other better time to start saving for your retirement than now.

You don’t have to save in big amounts. Since you’ve got a long way to go, you can start with small amounts, then slowly work your way up towards saving more substantive amounts. Remember that every single amount matters and these will make a difference.

For example, let’s say you just turned twenty today. You decided to save a dollar each day to add to your retirement fund. At the end of one year, you’ll have $365 US dollars. Ten years later or by the time you’re thirty, you’ll have $3,650 US dollars. If you keep this amount untouched when you start at twenty years old until you’re sixty, that’s forty years worth a dollar a day. That would be a whopping $14,600 US dollars. That’s just a minimum, at a dollar a day, without adding the interest. If you add more as you get older, plus your retirement benefits, that’s enough to give you a sense of stability and financial assurance come to your retirement.

Keep pushing the needle on your earnings


The more you earn, the more you can afford to put away for your retirement without compromising your lifestyle in the present. In practice, this means continually upskilling yourself. If you’re in employment, your employer may pay for some training. In fact, this is often one of the biggest advantages of being in employment. You should, however, usually be prepared to fund some of your training yourself.


The good news here is that some of the big names in education now have online courses. You can even access international institutions like VU Online. This can make it a lot easier both to afford the cost of education and to fit it in with your other commitments.


How to Start Figuring Out the Right Dollar Amount for You

First things first, there is no definitively correct answer to the question ‘how much should YOU save for retirement?’ The key word here is you. Your finances are unique, as well as your goals too. You must apply your own financial goals and retirement plans to your retirement savings strategy, and come up with a number that works for your situation. 

That being said, there are several tools available to help you calculate about how much you should save for retirement, and each of them can be equally useful in contributing to your goal. One of these is usually king though.

Savings Calculators

Go online and use a retirement savings calculator. Okay, that’s it. Stop reading. No, but seriously, using online resources such as a retirement savings calculator can be a great starting point for beginning to decipher what to aim for in terms of quantifiable numbers. 

Online retirement calculators are based on set formulas which are usually determined by industry experts and implemented in creating your unique calculation. This is great, and can be very useful to you. However, things are a little bit more personal than the generally accepted percentages that are quoted by financial analysts.

Most of these tools will use the generally accepted percentage of 15% when calculating your target retirement savings amount. 15% of what? Your annual pre-tax income. Let’s say, for the sake of simple math, your salary was $100,000 in 2019. Of that, you should be aiming to save roughly $15,000 towards retirement in that year. 

Even though you may not take home $100,000 after you pay your dues in taxes, the math is done on your gross salary, not the net. 

Personal Numbers to Consider

Saving for retirement is personal, as are most financial planning situations. The numbers that make sense to you are unique to your situation, and not anyone else’s. There are a few main things to consider when coming up with your finalized numbers.

Personalize Your Calculation

This percentage obviously differs as well. If you’re making $1,000,000 annually and save 15% of your gross income, then you could get away with saving far less than 15% if you’re okay with living on that amount during retirement. 

Your income, age, and retirement goals are the three most important factors when determining how much you need to save. If you start saving at 20, the percentage of income needed is less than that of a 40-year-old starting to save. If you have lavish retirement plans, the percentage comes up as well, and if you’re making a lot or a little, this will drive fluctuations as well. 

Remember that the recommended percentages are based upon averages and typical situations. Everyone’s life is different, finances included. So, it’s important to make your own calculating adjustments according to what your goals are combined with your situation.

This is a good baseline, but you’ll need to do some personal evaluations to determine a more definitive number when budgeting for retirement.

Although, this isn’t the end all be all, and it shouldn’t be your only stop along your retirement research path.

Determine What You Amount You Need to Live On

Determining the amount of savings you’ll need in order to pay expenses for 20-30 years can be tricky stuff. No one knows how long they’ll live, and most don’t care to know. It’s recommended to plan for at least 20-25 years when it comes to retirement though, and that’s a safe place to start. 

The expenses you plan to have will also play a big role in determining this. Hopefully you’ve got the mortgage paid off, but not everyone does and that can factor in as well, tacking a large amount onto your monthly expenses. 

You can estimate about how much you’ll need to spend on other essentials on a monthly basis as well. This can include groceries, electric bills, water, gasoline, recreational, charitable giving, and spending money too. 

If you’re planning on being very active in retirement and taking a lot of trips, you’ll need more than just enough to live on, and want to account for that in your total savings amount. The bigger the cushion between your baseline required amount to live on and where your account balance is, the better. 

Take these calculations and simply extend them out over years. By multiplying your estimated monthly expenses, you’ll be able to come up with an annual amount that can then be applied to multiple years, bringing you to your total required minimum. 

Your Investments

Single stocks, mutual funds, target retirement accounts, index funds, IRAs, Roth IRAs, HSAs, annuities, whole life insurance, dividend stocks, gold, cryptocurrency, and on and on and on. The options for retirement savings are seemingly endless, and there are even less conventional methods like purchasing assets such as real estate to store value and generate income too. It can be, let’s just say overwhelming. 

What your money is in will help determine how much you need to save. Different investments generate different returns, and while you obviously want the best possible one, sometimes those with the higher potential also carry higher risk. Because of that, you may elect to go with something safer and more predictable, and that’s okay. 

Whatever your investment of choice, you’ll need to calculate, project, and predict its anticipated ROI over time, and what the balance should be by the time you’re ready to retire. A difference in a few percentage points can be monumental on hundreds of thousands of dollars, and so can differences in taxes and how accessible your money is too. 

Pick the investments that align most with your goals, present situation, and anticipated needs too. Apply the math of your investments to your plans, and adjust accordingly. 

Healthcare, Emergencies, and What to Pass Down

These are the parts of planning for retirement that no one enjoys thinking about, but necessary preparations that must be accounted for when calculating how much you need to save. 

Healthcare is something that, in most cases, will be paid for through private health care, Medicare for US residents, or even healthcare via an employer if you were lucky enough to receive coverage in retirement for your time spent with the company. 

This is also an expense, and it’s something to account for in your monthly costs as well even if it is paid semi-annually or on another installment cycle. 

Healthcare is especially important for those in retirement, because this is when many unexpected medical expenses are most likely to arise, making it all the more important to plan for in your expenses.

Emergencies, be they health related or not, should also be taken into account. A trip to the hospital, a major surgery, a natural disaster, damage to your home that’s not covered by insurance, a family emergency, whatever it may be, emergencies are unexpected, and they can put the unprepared retirees in a financial hardship. 

Emergencies can’t be anticipated, but they can be planned for by saving more than your calculations say you need. There’s no definitive way to calculate how much you’ll need for unexpected expenses, because well, they’re unexpected, but it suffices to say going above and beyond in your savings as much as possible should do the job. 

What you leave behind to your family won’t be the first thing on your mind when planning for retirement, because your life is of first priority. However, the idea of being able to bless your heirs and ensure a great financial future for your family is something everyone would love to be able to do. 

Take the time to consider your financial situation and your retirement goals. No matter how close or far you are from retirement, it’s always good to ponder what you’d like to be able to leave for your family when you’re gone. Although this won’t be first priority in your order of savings, if it’s a luxury you can afford, it’s one worth affording and including in your savings goals. 

Your Retirement Savings Number is Unique to You

No one can tell you exactly how much you need to save for retirement, but with the tools and thought-provoking ideas given here, you should be able to find out for yourself. 

You’re already doing the research, so you’re on the right track. Get some estimations and make your own formulas too. Calculate for different potential situations, and play with different numerical inputs too. Ultimately, come up with a number that works best for you.


Further reading about retirement planning:
– Is property the best investment for retirement?
– IRAs – IRAR Trust explains the options
– Implications of working after retirement