Stay on Track for Retirement by Knowing How Much You Need to Save by What Age

By JIM PROBASCO, Updated January 02, 2024

Reviewed by DAVID KINDNESS

Fact checked by SUZANNE KVILHAUG

A key part of retirement planning is to answer the question: How much do I need to save to retire? The answer varies by individual, and it depends largely on your income now and the lifestyle you want and can afford in retirement.

Knowing how much you need to save based on how old you are now is just the first step, but it starts you on the path to help you reach your retirement goals. There are a few simple formulas that you can use to come up with the numbers.

KEY TAKEAWAYS

• How much you need to save for retirement depends on your current income and the lifestyle you want when you retire.
• Knowing how much you need to save “by age” can help you stay on track and reach your retirement goals.
• There are a few simple formulas that you can use to come up with the numbers.

How Much Do I Need to Save to Retire?

Many retirement experts recommend strategies such as saving 10 times your pre-retirement salary and planning on living on 80% of your pre-retirement annual income.

That means if you make $100,000 annually at retirement, you need at least $80,000 per year to have a comfortable lifestyle after leaving the workforce.

This amount can be adjusted up or down depending on additional sources of income, such as Social Security, pensions, and part-time employment, as well as factors like your health and desired lifestyle.

The 4% Rule

To determine just how much you will need to save to generate the income that you need, one easy-to-use formula is to divide your desired annual retirement income by 4%, which is known as the 4% rule.

For an income of $80,000, you would need a retirement nest egg of about $2 million ($80,000 /0.04). This strategy assumes a 5% return on investments, after taxes and inflation, no additional retirement income, such as Social Security, and a lifestyle similar to the one you would be living at the time you retire.

In general, the 4% rule assumes that you will live for 30 years in retirement. Retired adults who live longer need their portfolios to last longer, and medical costs and other expenses can increase as you age.

Retirement Savings by Age

Knowing how much you should save toward retirement at each stage of your life helps you answer that all-important question: “How much do I need to retire?” Here are a few useful formulas that can help you set age-based savings goals on the road to retirement.

Percentage of Your Salary

To figure out how much you need to accumulate at various stages of your life, it can be useful to think in terms of saving a percentage of your salary.

Fidelity Investments suggests saving 15% of your gross salary starting in your 20s and continuing throughout the course of your working life. This should include savings across various retirement accounts as well as any employer contributions you receive to those accounts, assuming you have access to a 401(k) or another employer-sponsored plan.

How Much to Save for Retirement by Age

Fidelity also recommends the following benchmarks—based on a multiple of your annual earnings—for how much you should have saved for retirement by the time you reach the following ages.

Source: Fidelity

An Alternative Formula

Another, more heuristic formula holds that you should save 25% of your gross salary each year, starting in your 20s. The 25% savings figure may sound daunting. But don't forget that it includes not only 401(k) holdings and matching contributions from your employer, but also other types of retirement savings.

If you follow this formula, it should allow you to accumulate your full annual salary by age 30. Continuing at the same average savings rate should yield the following:

• Age 35—two times annual salary
• Age 40—three times annual salary
• Age 45—four times annual salary
• Age 50—five times annual salary
• Age 55—six times annual salary
• Age 60—seven times annual salary
• Age 65—eight times annual salary

Whether or not you try to follow the 15% or the 25% savings guideline, chances are your actual ability to save will be affected by life events such as the job loss many experienced during the COVID-19 pandemic.

Retirement Savings Confidence by Age

Anxious that you aren't saving enough for retirement? You're not alone. As of 2021, there were roughly 60 million active 401(k) participants, in addition to former employees and retired adults. And while they may be active participants, people’s feelings toward retirement vary widely based on age.

According to the 2022 Investopedia Financial Literacy Study, the majority of adults expect that they will be able to retire. Among those surveyed, 57% of Generation Z and 62% of Millennials expect to retire. Nearly 66% of Generation X have such expectations.

Younger adults, ages 18 to 25, are most optimistic about retiring early—most of Generation Z believe they will retire by age 57.

Those are rosier numbers than what was found in the 2021 data from Natixis Global Retirement Index,

Natixis. "2021 Global Retirement Index."

 which indicated a majority of adults expected to work longer than expected with about 40% saying it would “take a miracle” for them to retire comfortably. It is possible that data was impacted by anxieties around COVID-19-related economic instability.

In Investopedia’s study, not all adults are particularly confident in their understanding of retirement planning. Behind digital currencies and investing, retirement was the third least-understood concept. And retirement was the top personal finance concern for about one-sixth of all those surveyed.

In the early and middle years of your career, you have time to recover from any losses in your retirement accounts. That's a good time to take some of the risks that allow you to earn more with your investments.

How to Calculate Retirement Savings

In addition to using the above methods to determine what you should have saved and by what age, online calculators can be a useful tool to help you reach your retirement savings goals. For example, they can help you understand how changing savings and withdrawal rates can impact your retirement nest egg.

Although there are many online retirement savings calculators to choose from, some are much better than others. The T. Rowe Price Retirement Income Calculator and MaxiFi ESPlanner are two worth trying.

Frequently Asked Questions

How Much Does a Couple Need to Retire?

Much like an individual, how much a couple needs to save to retire comfortably will depend on their current annual income and the lifestyle they want to live when they retire. Many experts maintain that retirement income should be about 80% of a couple’s final pre-retirement annual earnings. Fidelity Investments recommends that you should save 10 times your annual income by age 67.

What Is the 4% Rule?

The 4% rule is a guideline used to determine how much a retiree can withdraw annually from a retirement account. It is intended to make retirement savings last for 30 years.

How Much Should I Save for Retirement Each Year?

One rule of thumb is to save 15% of your annual earnings. In a perfect world, savings would begin in your 20s and last throughout your working years.

The Bottom Line

Sometimes you'll be able to save more for retirement—and sometimes less. What’s important is to get as close to your savings goal as possible and check your progress at each benchmark to make sure you're staying on track.

A 401(k) might be a good place to start—if you have access to one. If not, consider an IRA. Because the importance of saving for retirement is so great, we've made lists of brokers for Roth IRAs and IRAs so you can find the best places to create these retirement accounts.