Here’s How Much You Should Have Saved For Retirement

Have you ever wondered if you have enough saved up for retirement at this point in your life?  If so you are not alone.  In fact, after I was asked again recently “Right now I have xxx in my 401k.  How do you think I’m doing?” I went to go look up some of the popular rules of thumb to double check my ready responses.  After reading through the umpteenth convoluted retirement projection by another big financial firm, I knew I had to break out the spreadsheet and crunch some of my own numbers.

Turns out, at age 35 you should have about 1.27 times your annual salary saved in retirement vehicles (401k, IRA, etc…).  This is actually slightly more than I’ve seen from other sources partly because it assumes a fairly conservative 5% real return (after taking out a 3% impact from inflation, so we don’t have to deal with it in the numbers later.  This way we can assume everything is just priced in today’s money.  Put another way, the assumption is that your investment portfolio will earn 8% nominal and there will be a 3% inflation impact.  Still with me?).  If you are around 35 years old (or older) and hearing that projection makes your stomach drop (“Oh my goodness…. I have nowhere near that much saved up”) there is good news – You still have a lot of time left to make it up.

If you start working and saving at age 25, and you plan to retire at 65, you should be putting away a little more than 9% of your annual salary into a savings account (remember to count if you get a company match, so that if you get 50% match on contributions up to 6% of your salary, that means you contribute 6% the company contributes 3%, you are already at 9%).  Now what happens if you just never got around to saving anything at all, and now you find yourself at age 35 with zero savings?  Well the good news is that because you still have 30 years until retirement, you can still catch up.  It just requires that instead of 9%, you now need to contribute 16% of your income.  That should drive home the importance of starting early.  The best time to have started saving for retirement was when you were 16 at your first job.  If you didn’t start then, your only option now is to start today.

The thing about retirement planning is that you can get a good idea of broad concepts but there are a million different scenarios that can be taken into account.  After all, a lot can happen in 1 year or 5 years, let alone 30 or 40 years, and everyone is going to have slightly different needs and goals.  Before I get into any more detailed projections, I need to stress (not to cover my own butt, but because its important) that you should not depend solely on the information here and you should work with a qualified financial planner if you want to have greater certainty in meeting your retirement goals.

I have gotten the question enough times and in enough ways that I thought it would be instructive to do a quick scenario analysis on retirement planning.  Therefore, I am going to answer the three most popular retirement questions based on a few differing assumptions.

 How much should I be saving for retirement every year?

How much should I have saved up at age 35, 45, or 55?

How much do I have to save if I want to retire early? Or Late?

But first, let’s start with some of the basic assumptions.

Everyone will have slightly different needs and goals for retirement, but the most common rule-of-thumb to use for how much money you will need in retirement every year is 75% of your pre-retirement income.  This is used because it is assumed you will not be spending as much on things like work clothes, commuting to and from the office, etc… However, what if you dream of a retirement that is a little nicer?  What if you want a retirement that is a lot nicer?  What if you want to spend your time travelling, staying in nice hotels, and enjoying the fruits of your labor?  Taking those questions into consideration, I have modeled out the following styles of retirement.

Average Lifestyle = 75% of pre-retirement income

Plush Lifestyle = 100% of pre-retirement income

Baller Lifestyle = 125% of pre-retirement income

I also use a 5% rate of return assumption throughout the entire projection which I consider conservative.  This implies an 8% nominal rate of return averaged throughout along with a 3% inflation drag.  Some might suggest that 8% nominal is too aggressive an assumption for someone nearing retirement or too optimistic considering the current market environment.  Well over the last 150 years, stocks have averaged around a 10% return, and if you add in some bonds to dampen the volatility (assume a conservative 3% return) and a growth portfolio of 70% stocks and 30% bonds gets you to 8%.

(0.70 * 0.10) + (.30 * .03) = .079 = 8%

Inflation has been stubbornly low for a long time and currently sits at 2%, but I am assuming over a very long time, it will move around its long-term average of about 3%.

Given the above definitions and assumptions, here are the answers to some popular retirement questions.

How Much Should I Be Saving Every Year?

This matrix shows the percentage of your salary that you need to be saving every year in order to reach your desired level of retirement based upon when you were able to get started.  The power of compounding is strong here!  As you can see, you will need to start socking away almost 30% of your salary if you got a very late start but still want to live that baller lifestyle.

Percent of salary needed to save annually to fund retirement


How Much Should I Have Saved Up By Now?

The next matrix gives you an idea of how much you should have built up in retirement savings at different points in your life.  The important thing to remember here is that these are guidelines and not break-points.  If you are 45 years old and have a 401k balance that is not yet equal to 1x your current salary, first of all, you are not alone.  Most of America’s GenXer’s are under saving.1  Your goal should be to get closer to target by increasing your contributions by whatever you can every year.  Those incremental improvements will add up and help you get closer to your goal, so that maybe you only have to work an additional 3 years instead of 7, or maybe not at all if you are diligent and determined enough.

Multiple of salary you should have saved by given age and retirement goal

What If I Want To Retire Early?  Or Late?

The third most common question is to ask how much you need to save in order to retire early.  Either that or someone says (like I tend to do) they do not plan on ever retiring or at least retiring late.  Well retiring early is possible but not easy these days.  If you work in a field that offers pension benefits after age 55 or some similar structure than you have a few more options and possibilities.  The more likely scenario is that many people my age (35) will look at working a few extra years past 65, whether for financial reasons or simply because we enjoy what we do too much.

Percent of salary needed to save annually to fund retirement based on start and goal

Bonus: The Impact of Investment Results

While the time and amount you save will be the most important determinant of your retirement plan success, investment choices do matter as well.  Some people are too risk-averse and shy away from volatility at the expense of long-run returns that they could be earning.  Of course, on the flip-side, it’s not out of the question that an intelligent long-term investment strategy could outperform the conservative 5% target.  This next chart will show you the impact of investment returns on your retirement portfolio.

Percentage of salary needed to invest annually based on expected return and goal

Despite the compelling look of the super-competent investor needing to only sock away 7.26% every year to achieve a baller lifestyle, I would suggest that super competent investing results are never guaranteed.  You may have a lot of “experts” talk a good game about how they beat the market, but I would avoid anyone too sure of their own investment genius, and as a rule, base your planning around the 5% projection.


Too many people these days are under saving for retirement in a big way.  What is even worse is that many people do not even know where they stand versus where they should be.  While this guide should not be used as a precise measuring tool, it can work as a set of guideposts to give you an indication if you are close to meeting your goals and what you may need to get there if you are not.  Obviously, each of these scenarios can be reworked and combined in different ways depending on each circumstance, and as you get closer to retirement, you will want to get a much more precise picture than what can be offered with a simple scenario analysis.  Yes, this means speaking to a competent and caring financial advisor.  Just make sure you read this post about identifying scam artists before you hire for that position.

Until next time….

“How many millionaires do you know who have become wealthy by investing in savings accounts?” Robert G Allen


Photo Credit: Jeff Belmonte via