How Much Should I Save For Retirement?

For many of us, planning our financial future usually involves a monthly household budget. We track how much money we make and how we spend it each month. For those of us planning to buy a home, send kids to college, or just trying to build up a savings account, we work on strategies to put money aside.

But with our day-to-day financial activities, how much money are you earmarking in your budget toward retirement? If retirement is decades away, do you even know how much you should be saving? Whether you are 10 years or 40 years away from retirement, you can take steps to start securing your financial future. Below are some common benchmarks to follow deciding how much to save for your retirement.

I’m in my 20’s or 30’s – how much should I be saving?

A good practice to follow is to save 10 – 15% of your income toward retirement. For some of us, this range may be too high to start with. If that’s your situation, then just start contributing something every month or every pay period. As your income grows over time and you plan your monthly budget, work toward saving 10% - 15% of your income for retirement.

The best way to save your money is to contribute to an employer-sponsored retirement plan, commonly known as a 401(K). If your employer matches a portion of your contributions, it’s helpful to contribute the full amount that your employer will match. Between employer-matching and the interest you earn, you can see your retirement plan balance rise quickly. The IRS does limit the amount that you can contribute each year to a retirement plan, so be sure to check what the maximum contribution is for the year.

If your employer does not offer a retirement plan, you can setup an individual retirement account, also known as an IRA. An IRA is also subject to an annual limit, which you can verify here. In some cases, IRA contributions may be deductible on your tax return.

I’m in my 40’s – how much should I be saving?

If you started saving for retirement in your 20’s or 30’s, a good benchmark to shoot for by the time you hit 40 years old is to have 3 times your current salary saved up. So if you are currently making $50,000 per year, you should have at least $150,000 saved toward your retirement. By the time you reach 45 years old, you should be at 4 times your salary.

If you are just starting to save in your 40’s, you can still catch up. It will require that you retool your budget with a strong focus on saving for your retirement. If you are able to put aside 20% of your annual salary, this can go a long way. For someone making $50,000 a year, this translates to $10,000 in savings. And as you make contributions to your retirement account, this $10,000 will grow with interest.

I’m in my 50’s – how much should I be saving?

Once you hit 50 years old, it is recommended that you have 6 times salary saved up for retirement. If you are very far behind this number or haven’t started, don’t despair. Place retirement contributions high on your budget and make it a point to save as much as you can. Once you hit retirement age, it is recommended that you have eight times your current salary saved up.

With so many other financial needs in our lives, saving for retirement can often take a back seat to the other things in life that we think we need. Even though your retirement age may be decades away, you will get there quicker than you think. Resist the urge to skip this important part of your budget and dutifully contribute toward your retirement plan.