Retirement Planning: How Much You Should Really Be Saving

Caroline Wright
February 27, 2013



Based on our income, our employment status, and our general economic principles, we all plan for retirement differently. But no matter how you prepare for life after 65, the question remains: Are you saving enough?

Only about 14 percent of American works are very confident that they will have enough money to live comfortably during retirement, according to a recent study by the Employee Benefit Research Institute.

It could be because the average Social Security benefit is just $1,230 a month, according to the U.S. Social Security Administration. That means that Social Security isn’t likely to cover all retirement expenses, so the majority of your living costs will come from your personal retirement savings.

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A general rule to follow is that you will need 70 percent of you pre-retirement annual salary to retire comfortably. However, if you are in poor health or have outstanding debt, this percentage may need to be higher. A 65-year-old couple retiring in 2012 will need about $240,000 to cover medical expenses throughout retirement, according to calculations by Fidelity Investments.

So what does this mean for you, the under-65 individual still looking forward to retirement?

“For retirement savings, slow and steady wins the race,” said Kimberly Rotter, financial expert and financial contributor at

Time is more important than money when it comes to your retirement plan. If you are 20 years old and can commit to saving $150 a month, and you contribute to your retirement account at that rate for 45 years, you will end up with between $380,000 (6 percent return) and $514,000 (7 percent return) in the account when you reach 65. If you are 50 and saving $1,000 a month, a 6 percent return will only net you $280,000 by age 65. In this case, you may end up having to work past retirement age to save up enough money.

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If you’re in your 20s or early 30s and just starting your retirement planning, try to contribute as much as you can to your 401(k) or IRA on a monthly basis. If you’re 25, many financial planners recommend saving 15 percent of your income annually for slow, steady growth. If you’re 30, that percentage jumps to 19 percent.

Although it can be tough to save when you’re young and not making a lot of money, the best way to contribute is to have the money automatically deducted from your paycheck. That way, you never feel the pain of “losing” your hard-earned money and you won’t be tempted to spend it.

Make sure that you are making your maximum monthly contribution to your 401(k) program. For those under 50, that’s $17,500 annually. If possible, set aside additional savings in a traditional IRA or Roth IRA to receive additional tax benefits. You can contribute up to $5,000 annually if you are under 50 and $6,000 if you are above. Also, make sure you start paying off your high-interest credit cards so that you enter retirement without debt.

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If you’ve reached your 50s, take advantage of catch-up contributions, which let you contribute up to $5,500 more to your retirement plans than the maximum allowed amount for those under 50. If you set aside an aggressive percentage of your annual income by maxing out your 401(k) and catch-up contributions and adding to your IRA payments, you can save enough money by the age of 65 to retire with some peace of mind. The issue here, of course, is that most people cannot afford to set aside such a large portion of their annual salary. In this case, you may have to decrease your monthly contributions and expect to work past the age of retirement or reconsider your retirement lifestyle.

Whether you’re an early starter, a late starter or solidly chugging along, recalculate your percentages each year and live within your means to the best of your ability ability, says Sam Burgoon, personal financial expert at and account executive for

With so many market fluctuations, you may have to adjust the numbers based on your new situation and might be tempted to dip into your savings to pay off debt. In these cases, remember that the numbers are not written in stone and can be adjusted to help you more easily afford your day-to-day living situations without taking away from the retirement you’ve already saved up for. Use a free online calculator to determine how much you should save, and work out a budget so that you can make those contributions and enjoy a comfortable retirement.

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