“Save as much as you can” isn't a plan. These rules of thumb give you a target, and a calculator turns that target into a number you can set up as a monthly transfer.
Rule 1: Save about 15% of your income
Many financial planners suggest saving around 15% of your pre-tax income for retirement from your mid-twenties, including any employer contribution. Starting later means you need a higher rate; starting earlier lets compounding do more of the work.
Rule 2: Milestones by age
A popular set of checkpoints, based on your yearly salary:
| By age | Savings target |
|---|---|
| 30 | 1× your salary |
| 40 | 3× your salary |
| 50 | 6× your salary |
| 60 | 8× your salary |
| 67 | 10× your salary |
These are guides, not rules. Behind on them? Many people catch up in their 40s and 50s, when income is often highest.
Rule 3: The 4% rule and “25 times”
Research on US market history found that withdrawing 4% of your savings in the first year of retirement, then raising that amount with inflation, has lasted at least 30 years in almost every historical period. Flip it around and you get a target: about 25 times the yearly income you need from savings.
Want $30,000 a year on top of a pension or Social Security? That's roughly 25 × $30,000 = $750,000.
Turning a target into a monthly amount
Someone who saves $500 a month from 30 to 65 and earns 6% a year ends up with about $687,000. In today's money, after inflation, that's a good deal less, which is why the retirement calculator shows both figures and works out the monthly saving your goal needs.
Five ways to boost your retirement savings
- Always take the full employer match. It's free money.
- Raise your contribution by 1% every time you get a raise.
- Use tax-advantaged accounts such as a 401(k), IRA, ISA or pension.
- Keep investment fees low; small percentages compound over decades.
- Don't cash out retirement accounts when changing jobs; roll them over.