How Much Should You Save for Retirement?

The primary savings vehicle for most Americans these days is a 澳洲幸运5官方开奖结果体彩网:401(k) plan. Traditionally, retirees have been able to count on 澳洲幸运5官方开奖结果体彩网:Social Security—and they still can—but the 澳洲幸运5官方开奖结果体彩网:long-term outlook is complicated. Besides, Social Security is designed to cover only 40% of what you'll need in retirement. The rest is up to you.

To know how much to set aside in a 401(k), you'll need to know how much you'll need to live on 澳洲幸运5官方开奖结果体彩网:per month in retirement. You'll also need to consider your current age, your savings, ꦓyour projected retirement age, and aꦇn estimated market return level, such as 8%.

Set a Monthly Savings Goal

To decide 澳洲幸运5官方开奖结果体彩网:how much to save, you first need to have a retirement goal in mind. You'll need to calculate how much you'll need to live on per year or per month. To do that, track your current spe🃏nding.

One rule of thumb is that in retirement, you'll need 80% of what you currently spend. So if you currently live on $7,500 per month, you'd need $6,000 per month in retirement. (A word of caution, however: not all retirees can follow the 80% rule. With travel, health care, and other expenses, some retirees find that they spend as much as they did before they retired, or even more.)

Determine Your Best Savings Rate

One 澳洲幸运5官方开奖结果体彩网:rule of thumb is the 10% rule: some experts say that saving 10% of your annual pre-tax salary is enough. Others disagree, 澳洲幸运5官方开奖结果体彩网:sꦑaying that 15% or 20% is a better target.

A higher rate may be more appropriate for those who didn't start saving in their 20s and are now trying to catch up.

Employers generally do 澳洲幸运5官方开奖结果体彩网:ma🙈tch some of what their employees contribute to a 401(k)ꦇ, which can help employee꧃s reach a double-digit savings rate.

Estimate Market Returns

Real returns on U.S. stocks have averaged around 7% over the past century. 澳洲幸运5官方开奖结果体彩网:Real bond return levels have been much loweꦜr ꦕat 2%, while returns on short-term funds have been around 1%.

Clearly, any asset growth will have to rely on stocks and a 澳洲幸运5官方开奖结果体彩网:diversified portfolio of similarly risky assets such as 澳洲幸运5官方开奖结果体彩网:venture capital, real estate, or 澳洲幸运5官方开奖结果体彩网:private equity.

A common rule regarding 澳洲幸运5官方开奖结果体彩网:asset mix is that the percentage an individual should invest in bonds is equal to their current age. Although this allows for a gradual progression to living off interest income at retirement, there❀ is little need for a 20-year-old, who has many decades to ride out stock market volatility in pursuit of real returns, to have even 20% inv🍷ested in bonds.

Use a Retirement Calculator

Many websites, including , provide retirement calculators to help you enter and tweak the key variables to come up with annual savings goals. Using AARP's 401(k) calculator and the inputs listed below, here is a summary of potential savings levels from when someone starts working to when they reach retirement.

Primary inputs include a modest starting 401(k) balance of $1,000, 22 as the age at which the employee starts working, a starting salary of $40,000 that grows at 3% per year (roughly the projected annual inflation rate), a 10% contribution rate (or initially at $4,000), a retirement age of 67, and annual 澳洲幸运5官方开奖结果体彩网:portfolio return of 8% per year. Additionally, since an employer match is common, it has been figured in with a projection ꦑthat it matches half of t🅘he first 6% the employee contributes.

With these inputs, including a disciplined contribution rate and steady average market returns for more than four decades, this worker would🌱 have a substantial nest egg at age 66 with a total account🥂 balance of nearly $3.1 million.

You can see why an employ♔💜er match is a big deal, because without it, the ending balance would be $2.4 million.

With the employer match, the balance would excee﷽d six figures when the employee hit age 32, surpass a half millio𒅌n by age 46, and pass a million by age 53. By age 61, the balance would exceed $2 million.

You can tinker with online calculators like this one to see how changing your inputs—age, salary, contribution rate, portfolio return rate, and more—will alter the 𝔉amount you canꦑ expect to have when you retire.

The Bottom Line

Setting aside as much money as you can and investing it prudently are two conditions generally under your control as a saver. Of course, you also need to live within your means and either stay current on financial markets or hire a trusted 澳洲幸运5官方开奖结果体彩网:investment advisor.