How Much Should I Save for Retirement?

When they’re planning for retirement, investors typically ask themselves, “How much should I be saving?” This question persists throughout the entire retirement planning process: How much retirement savings should I have at 35? How about at 40 or 50?

When it comes to something as important and unique as retirement, the truth is there's no rule of thumb that works for every person. But there are some general principles that may be worth considering:

The 10% Rule

If you start saving for retirement in your 20s, the 10% rule suggests that you save at least 10% of your income for the rest of your career to be able to live comfortably in retirement. For every decade you age before you start saving, the percentage of your income you should put toward retirement increases by another 10%. For example, if you start saving in your 30s, according to the 10% rule you should save at least 20% of your income. If you start in your 40s, you should save at least 30% and so on.

The 100-Minus-Your-Age Rule (and why it doesn't work for everyone)

When you're focusing on how your savings are invested and the potential for investment returns, it's important to think about the stock/bond mix in your portfolio. According to the 100-minus-your-age rule, the percentage of your portfolio made up of stocks should be equal to 100 minus your age.

But here's the thing: This "rule" does not work for everyone. It doesn't take into account your personal financial situation.

For example, if you're only able to put 5% of your income toward retirement savings in your 20s, you may want to consider taking on some extra risk in exchange for investments that offer the potential for higher returns.

And, while this principle may be applicable for working investors, it may not be the right rule for everyone.

Instead of basing your portfolio off of a generic rule, think of the principle behind the rule: asset allocation. The asset allocation of your portfolio can play a big part in determining your returns and how much you’ll need to contribute. If you can accept a little more volatility in your portfolio, you may be able to contribute a smaller percentage. If you prefer an asset allocation that targets more steady growth with less volatility, you might want to contribute a higher percentage of your income.

Think Beyond Generic Rules and Develop a Rule for Yourself

While the exact amount you should save varies based on factors such as your income, your desired retirement lifestyle and your ability to understand and accept market volatility, it may be helpful to establish a benchmark for yourself.

Set realistic goals like, "By the time I'm 40, I want to be contributing 10% of my income to a retirement savings plan" or "By the time I'm 5 years from retirement, I want to be comfortable enough with my retirement portfolio to scale back and focus on investments that tend to be less volatile."

And, when you’re figuring out exactly how much you should save to be comfortable in retirement, think about your personal situation. Here’s an example of some questions you can ask yourself:

  • When do you plan to retire?
  • What sort of lifestyle do you want to have in retirement?
  • How much annual income will you need to sustain that lifestyle?

After answering questions like these, you can help determine the total amount you need to save before you retire. Then, you can continue to work backward to figure out what percentage of your salary you need to save and what rate of return you will need to get to the retirement number.



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The material provided in this presentation is for informational purposes only and its use does not guarantee a profit. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security, type of security, or pursue a specific strategy. Investors should fully research any security or strategy before making an investment decision.

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