Building Your Retirement Future: How Much Should You Save?

Everyone has a vision for retirement. You might dream of traveling the world.

You may want to spend relaxing afternoons with loved ones. Or you could finally work on that passion project you have set aside. No matter what your ideal retirement looks like, achieving it requires smart planning and consistent saving.

But how much do you really need to set aside?

A Simple Guideline: Save 15% of Your Income

A good rule of thumb is to save at least 15% of your pre-tax income each year. This includes any contributions from your employer. This target assumes you begin saving at age 25 and continue until age 67.

Using this method and other smart money choices can help you maintain your lifestyle in retirement.

Why 15%? The Math Behind the Number

To determine this savings rate, we first considered how much people typically spend in retirement. Research suggests that most retirees need 55% to 80% of their pre-retirement income to sustain their lifestyle.

Of course, not all of this income must come from your savings—Social Security will cover a portion of it. Most people can expect to get around 45% of their retirement income from personal savings. We looked at the numbers to find this information. And based on long-term projections, setting aside 15% of your income annually should help you reach that goal.

If you're fortunate enough to have a pension, you may be able to save less. But for most, sticking to this 15% benchmark is a smart strategy.

A Real-World Example

Meet Joanna. She's 25 and earns $54,000 annually.

If her income grows at an average of 1.5% per year (after inflation), she’ll be making around $100,000 by age 67. To keep her lifestyle before retirement, she will need about $45,000 each year from her savings. Social Security will cover the rest.

Joanna's employer gives a 5% match for her 401(k). This means Joanna only needs to put in 10% of her income. With this, her total savings rate becomes 15%. This simple step can help to set her on track for a financially secure retirement.

But is 15% enough for everyone? It depends. Factors like when you start saving, when you plan to retire, and whether you have other income sources will all play a role.

Smart Strategies to Strengthen Your Retirement Savings

Now that you have a savings target in mind, let’s explore some key steps to help you reach it.

1. Start Early

The sooner you start saving, the more time your investments have to grow. This also helps them recover from market changes. Even if retirement feels far away, every dollar saved today works harder for you in the long run.

2. Consider Delaying Retirement

Our 15% savings guideline is based on retiring at 67, when most people qualify for full Social Security benefits. If you plan to retire earlier, you’ll likely need to save more than 15%. Conversely, working a few extra years can reduce the pressure on your savings.

3. Maximize Tax-Advantaged Accounts

Take advantage of retirement savings vehicles like:

●      401(k) and IRA accounts: Contributions to traditional accounts are tax-deductible, helping lower your taxable income now. Roth accounts, on the other hand, offer tax-free withdrawals in retirement.

●      Health Savings Accounts (HSAs): If you have a high-deductible health plan, an HSA can help you save money for medical expenses. It is a tax-free way to save for retirement.

4. Make the Most of Your Employer Match

If your employer offers a 401(k) match, contribute at least enough to maximize this “free money.” Letting a match go unused is leaving money on the table.

5. Increase Savings by 1% at a Time

A small increase in your savings rate can have a big impact over time. Raising your savings rate by just 1% annually could lead to thousands more in retirement income.

6. Catch Up If You're Over 50

If you're 50 or older, take advantage of catch-up contributions. In 2024, you can contribute an additional $7,500 to a 401(k) or $1,000 to an IRA beyond standard limits.

7. Review & Rebalance Your Investments

Markets fluctuate, and your investment mix should align with your goals and risk tolerance. Check your asset allocation at least once a year. This helps make sure it is diverse and fits your long-term goals.

8. Consider Professional Guidance

If managing investments feels too hard, think about options like target-date funds, managed accounts, or financial advisors. They can help you create a better investment strategy.

Make Retirement a Priority

Life comes with unexpected expenses—raising children, supporting aging parents, or handling emergencies. While these demands can make saving difficult, it’s essential to keep your retirement a top priority.

Even if you can’t reach 15% every year, do your best to save consistently and increase contributions over time. The decisions you make today will shape the future you enjoy tomorrow.

Ready to take the next step? Start planning, stay disciplined, and watch your retirement savings grow.

Sources:

https://www.fidelity.com/viewpoints/retirement/how-much-money-should-I-save

Disclosure:

 This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

 Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.