How Much Should You Save Before Retirement?

No matter where you are in your career, and no matter how long you’ve been saving for retirement, one question is always looming: Have I saved enough? 

The challenge with retirement, and the reason this is always a question, is that there isn’t a magic number. Financial planning would be infinitely more straightforward if there were. And, trust us, if everyone could save “X” amount per year to be retirement ready, we’d be shouting that number from the rooftops. 

Saving for retirement depends on a variety of factors—monthly expenses, retirement lifestyle expectations, years until retirement, estimated inflation, and more. So, as you can imagine, the amount one needs for retirement varies dramatically from person to person. 

All things considered, we can’t give you a hard-and-fast number, but we can give you tips on how to know you’re saving enough. In this article, we’ll take you through retirement savings rules of thumbs, challenges to anticipate, and a few things to consider. 

Retirement Savings Rules of Thumb

We can’t stress enough that saving for retirement is relative to your circumstances. However, we do have a few loose guidelines that will help you move in the right direction.

1. Try to save around 15% of your income. If you’re starting to save for retirement in the early stages of your career, try to save as close to 15% of your income as possible. Of course, even if you have only 5% available, getting into the habit of putting money back is the best possible first step. If you’re starting to save later in your career, you’ll likely need closer to 20% to catch up.

2. Take full advantage of employer matching. Many employers will match up to a certain percentage of your 401(k) contributions. Leaving this money on the table would be a mistake as it can help you grow your balance more quickly. It is wise to maximize that contribution and beware of any vesting periods—meaning that your employer may require you to stay with their company for a certain period of time before their 401(k) matching contributions are officially yours.  

3. Save enough to have 80% of your pre-retirement income. Many advisors estimate that retirees spend 20% less in taxes and other work-related expenses, allowing them to live off of 80% of their working income. The 80% rule factors in that some costs in retirement will increase (per inflation and medical bills) and others will decrease (taxes, a professional wardrobe, etc.). While the 80% rule works for some, its success depends largely on the lifestyle you want to live after retirement. If you’re going to maintain your current standard of living, there’s a good chance this will suffice. If you’re going to take bi-annual trips to Santorini, you might want to reconsider how much you’re saving.

4. Don’t rely only on rules of thumb and Internet research. This one might sound counterintuitive, coming from a rules of thumb list on a piece of Internet research, but hear us out. Reading Internet research is a great way to get your bearings. It can guide you and answer some of your questions, but it doesn’t paint a picture. Any amount of research you do will likely be disjointed with differing perspectives, not to mention that the people behind the research articles (including us) don’t know your personal finances. It’s up to a financial advisor to sit down with you and discuss your finances holistically, understanding your current standing, your goals, and how you can get there. 

5. Save six months’ expenses in an emergency fund. Though this rule isn’t about retirement savings directly, it does relate. Savings six months’ worth of your expenses will give you a cushion for possible bumps in the road—both now and later. We can’t predict the future, so we want you to be prepared for unexpected financial burdens. With an emergency fund, a setback won’t derail your retirement savings. Speaking of setbacks that could derail your savings, we’ve listed a few in the next section of this article.

Obstacles That Could Derail Your Savings

What to Consider

No two retirement plans are exactly alike. Consider all tips and guidance with the understanding that your unique circumstances are far more critical for planning. 

If you aren’t sure if you’re on track for retirement, find an advisor to shed light on your progress and next steps. Your advisor will approach your finances holistically, considering all angles and designing a strategy that works for you. 

A Final Note

At Southwestern Investment Group, our team of advisors are experts on retirement planning. We take the time to fully understand your needs and your current finances before we ever create a strategy. Our goal is to make clients feel heard and welcome while always doing what is in their best interests. 

Contact Southwestern Investment Group to schedule your first consultation.

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