How Much Should You Really Save For Retirement Each Year? It Depends

Saving for retirement is a uniquely personal feature in every individual consumer's budget. All experts agree that saving for your retirement is an essential part of the modern worker's budget but there's no one-size-fits-all approach to calculating the value you need to produce over these working years. Obviously, the more you can save now the more financially buoyant you'll find yourself later on, but this doesn't mean everyone should place retirement savings as their first priority and seek to maximize their contributions on a yearly basis. This just isn't feasible for most people.

That's because some consumers will be saving to create a lavish retirement, pouring capital today into their retirement vehicles to generate as much compound interest and overall growth as possible. Others, meanwhile, might live frugally today and expect to continue in that trend later on, drawing Social Security checks and utilizing a modest nest egg that doesn't break the bank in the present to fund a different kind of future.

With this said, the question remains: How much should you really be saving for retirement? For most, the answer is roughly 10 times your preretirement salary (12 times is floated sometimes as well). If you estimate your income in the years directly ahead of your exit from the workforce to be a nice round $100,000, then a retirement-savings goal of $1 million should be clear in your mind, given a 10-times savings figure. The process is somewhat complicated by the fact that you won't have to put $1 million in principal investments into your retirement accounts to reach this target.

Experts suggest retired people should anticipate living on about 80% of their preretirement income (although figures vary in this regard). There are lots of financial resources that can play into achieving this, so the best approach is to begin with your existing budget, then work through your future retirement income sources.

Saving up for retirement should already be a part of your current budget, but if it is not, make it a priority going forward. This doesn't mean flailing around and pumping cash into your retirement accounts, though. Programs like a company 401(k) match (here's the real reason companies offer it) can go a long way to covering the monthly savings targets you set. Once you've established your current expenses and explored what your future spending habits might look like, it's possible to start evaluating how much you can realistically contribute to your retirement fund and how much your lifestyle is likely to cost.

The average Social Security benefit (as of August 2024) is $1,920 per month. Keeping with the $100,000 end salary example, you'd need a total of roughly $6,700 in monthly income to maintain your existing lifestyle, assuming a 20% reduction in spending. This leaves ~$4,800 in monthly income that you'll need to account for on your own.

Achieving ~$4,800 a month in retirement isn't a feat of simply amassing wealth but rather one of calculated drawdown expectations. One of Dave Ramsey's worst pieces of financial advice centers on the idea of an 8% drawdown rate. With this underpinning your strategy, you'd need just $715,000 in total retirement savings, but will flirt with the real threat of running out of money while you're still alive.

Some experts will suggest a 6% drawdown rate (requiring assets totaling $960,000) while others focus on the "4% rule," demanding capital rising to $1,440,000 in total savings. Regardless of your focal point, it all comes down to simple arithmetic in the end. Depending on your age and your ability to set money aside, reaching these goals might be simple — or very challenging. As an example, starting at zero on your 35th birthday, you'd need to save $1,050 a month ($12,600 per year) to reach the 4% drawdown principal figure.

If you begin your savings journey at 25, however, this investment figure drops to $520 per month (with all this assuming a conservative 6% return). Hitting the 6% target, meanwhile, while beginning at 25 is even less demanding, requiring a monthly contribution of $345 ($4,140 per year). Time and compounding interest will do much of the heavy lifting here, so the earlier you start the less you'll need to personally set aside to reach your ultimate retirement target. The takeaway here is that "it depends," but that answer is far less murky than it may seem if you explore what it means for you personally.