What Percentage of your Income do you need to save for Retirement?

What Percentage of your Income do you need to save for Retirement?

February 18, 2022

You know retirement is important, and you know you need to save for it, but how much of your income should you be stowing away from each paycheck in order to comfortably retire one day? While there is no “handbook to the perfect retirement” we work with clients each and every day with similar goals, and although we can’t give you an exact percentage to save for your future retirement, we can give you some general guidelines to help get you there.

When will you retire?

Everyone’s vision of retirement is different. Some people envision themselves in their 50’s traveling the world, others can’t imagine leaving the business they’ve worked their entire lives to grow and don’t see themselves slowing down until their 70’s or even later.

The first step of retirement planning is to determine when, realistically, you are faced with that option. Things to consider would be the growth track of your career and earning potential, health insurance costs especially prior to Medicare age, and things like starting social security, pensions, or any other type of income you expect to have in retirement.

How much do you need in retirement?

The next step is nailing down how much money you’ll need in retirement in the first place. And the best place to start is with your current spending. How much do you spend, after income tax, each year to live comfortably? This includes the fun parts of life – activities, sporting events, trips and excursions – and the not so fun things we need to spend money on such as property expenses, medical bills, and new tires on the car. Once we have a general idea of how much you spend, we’ll have to consider the lifestyle you’re envisioning.

Are you traveling the world? Are you watching the grandkids at home? Are you enjoying hobbies like pottery, or do you plan to go mountain climbing out west? All of these things play a role in how much money you’ll need to budget for.

Then we look at property expenses – will you have a mortgage in retirement or will your home be paid off? What about second and third properties, do you plan to keep the cabin? Are you getting rental income from somewhere?

Finally, we talk about rising healthcare costs and long-term care.

Once we have these numbers broken down and accounted for, we can make an accurate estimate of the amount of money you’ll spend each year throughout your retirement. We adjust this for inflation and assume a conservative return on your portfolio to understand how much you will need to save.

Establishing Savings Goals

Last but not least is establishing the savings goals necessary to get you there. The most important part here is to make sure these goals are attainable. We all want to say that we can save 50% of every paycheck, but the reality is a lot of people cannot. We have bills to pay, item’s we need to buy, and experiences we want to have sooner than later.

The good news is, coming up with a savings goal doesn’t need to be stagnant. Maybe this year you can only save a small percent of your paycheck because you have a mortgage payment and are saving for college education, but in 5 years you expect to be able to save significantly more. Your salary is going to go up and you’ll have the mortgage paid off so you’ll boost your ability to save in a few years. Establishing these goals means that we are constantly reviewing them, adjusting them, and making sure that things are on track, whether your retirement is 30+ years down the road or just around the corner.

Retirement is something everyone has on their minds and we all want to know how much to save. While we can’t tell everyone to save an exact percentage of their paycheck to retire, we can help determine how much you need to save for your own personal retirement goals.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.