How Much Should I Save for Retirement?

When asked how much an individual should save for retirement, the common reply is “as much as you can.” Although this is a good aspirational goal, it provides no realistic framework for saving for retirement. In order to save for a comfortable retirement, it is important to set a realistic savings target based on your income and circumstances.

The amount you will need to save depends on many factors, including your anticipated lifestyle and how many years you have until retirement. A standard number that works for most individuals is 15 percent of their take-home pay over their working career. If you are closer to retirement, consider saving more, if possible.

When projecting retirement needs for your situation, begin by considering the age of the younger spouse, who presumably will outlive the older spouse. Your plan needs to provide for the younger spouse throughout his or her life expectancy. Next, consider what age you would like to be when you retire. Remember that the ability to retire does not mean that you must actually leave your job. It simply means that you have reached financial independence and could leave your job if you would like to.

Next, consider how you have allocated your assets. You may be holding the majority of your assets in financial instruments with little to no return, such as bonds and low-interest savings accounts. Conversely, you may have the bulk of your savings in more high-yield yet risky accounts. If you have more time until retirement, consider investments that have more potential for growth (but which often carry more risk of loss) over investments that yield more income but that have less risk and less growth opportunity.

Establish a realistic plan for meeting your retirement goals and start saving now using these considerations and strategies.