How Much You Should Have Saved for Retirement

Employer-sponsored pension programs have gone almost entirely the way of the dinosaur, so it's increasingly up to each individual to plan his or her retirement carefully. But how much should you have already?

The good old days of the company-sponsored pension plan are effectively over with for most people. That makes retirement planning a bit tricky. While there are plenty of ways to save, not everyone has picked up where pension programs left off, unfortunately. As a result, many are far behind in their retirement savings.

Just how much should you have saved up?

That depends on a number of factors, but in general here's a rough guide.

How Much You Need, By the Decades

  • In your 20s. You may just be starting out, and you may still be in debt, but that doesn't mean there isn't room for retirement savings in your financial plan. The power of compounding interest is truly your best friend right now, so even a few thousand a year put away in a retirement account will see you far.
  • In your 30s. Now's the time to start in earnest on ridding yourself of debt. That can be hard if you're starting a family, so careful planning at this stage is crucial. But you're still young, so compounding interest is still on your side. It's also a good time to start practicing paring down your expenses. If that becomes a lifestyle behavior, your savings efforts will be that much easier.
  • In your 40s. This is the final stretch of building your retirement savings before you start also focusing on accumulating wealth. These are your prime money-making years, statistically, so really double down and see how much you can sock away.
  • In your 50s. Now, you'll have to find the resources to keep on saving and accumulate wealth. You'll also need to start thinking about long-term care planning.
  • In your 60s. At this point, it's a safe bet to say that you'll need to have around 25 times the amount you think you'll need each year in retirement. Let's say you think you'll need $75,000 per year once you retire. Subtract what you'll receive in Social Security (let's say $30,000) and you'll need to have ($45,000 x 25) $1,125,000.

Try Focusing on Behavior, Too

We all love handy retirement calculators and precise dollar figures to guide us in retirement planning, but changing your behavior can do more than pinpointing any dollar amount to strive for- here's why.

If you can teach yourself to become an avid saver, you'll have more money to invest. That's obvious. But the added benefits of eliminating superfluous expenses include the ability to live on less. Ramp that up and you'll find that you don't need as much to retire as you may have once thought you did.

Learning how to watch your spending (and making a long-term habit of it) means you're increasing your power to save. The earlier you can start putting away a larger chunk of your annual income towards retirement, the more you'll have in that nest egg once it comes time to trade in your suit for a pair of flip flops and a couple pair of shorts. Again, it's the power of compound interest at work for you. In fact, if you get really good at cutting expenses and saving, you may even be able to retire earlier!

Whatever age you are right now, it's not too late to start saving... not sure how? A financial advisor can get you on track.


Charles Donalies is the founder of Donalies Financial Planning, a fee-only financial planning firm located in Washington, D.C.

Charles and I became friends after meeting through the XY Planning Network and I asked him to write some thoughts on retirement savings milestones as a guest topic for The Northwoods Blog.