Search form

Donate Today

Cash With Draw

How Much Is Enough for Retirement?

We all know that we should be saving up for retirement, and that it's never too early — or too late — to start. But how much is enough? Here's one winning formula:

  • By age 35, save enough to equal one year's salary. Do this by maxing out your 401K and setting up a monthly automatic deposit into a no-load mutual fund.
  • By 45, save three times your salary at that point.
  • By 55, save five times your current salary.
  • And by retirement you should have eight times your current salary.

It's important to note that while these are general guidlines for planning for retirement, not everyone has the same financial needs. How much you'll need for retirement depends on your particular cirucumstances. A licensed financial professional may assist you in developing a plan tailored to your needs. 

Some financial professionals recommend saving at least 15% of your pre-tax earnings every year, preferably starting in your 20s. The later you start, the more you should save.

Every ten years, do a reality check:

  • Step one: Add up all your savings, including 401K, IRAs and other investments.
  • Step two:  Determine when you want to stop working.
  • Step three: Determine your retirement "income." Check with Social Security to calculate your retirement payout and any other sources of income you will have in retirement. In determining how much money to withdraw from savings, IRAs or other investment accounts per year, you should consider the number of years that you will need the money to last while in retirement.
  • Step four: Figure out how much you'll "spend" in retirement. Some experts say that's usually 75%–80% of your final pay.
  • Step five: Compare your expenses with your income. If they're roughly even, congratulations, you're on target!

If you need to save more, you still have time to adjust. Bump up how much you save, or count on working longer. Remember, what you don't spend now will add up to a bigger retirement "paycheck." Learn how to turn your small expenses into retirement savings.

Believe it or not, it is possible to make less than $150,000 a year and still save a million before retirement!  What's the secret? 401K millionaires start saving at a young age and put away a large chunk of their money — a median of 14% each year, before the employer match. They also diversify their portfolio, investing a larger percentage of their savings in stocks.

Here are a couple of formulas to help you understand how to become a 401K millionaire:

*Based on informartion from Fidelity Investments

Maximize your retirement investments with these guidelines from DFI ►

Need some help with your retirement reality check? Try using this calculator to see where you stand for retirement ►