How Much Should I Save for Retirement?

A Practical, Data-Driven Guide on How Much Should one should Save for Retirement?

Planning for retirement is one of the most important financial decisions you'll ever make, yet it’s one of the most confusing for many. How much is enough? How do you know you're on the right track? While there’s no one-size-fits-all answer, there are clear, evidence-based strategies to guide you in estimating how much you should save for a financially secure retirement.

This post will walk you through key retirement saving benchmarks, explain the reasoning behind them, and offer practical advice based on financial research and expert recommendations.

How Much Should I Save for Retirement?

Let's start by exploring: Why Saving for Retirement Matters

According to a 2023 report by the Transamerica Center for Retirement Studies, the median retirement savings among American workers is only about $93,000, far below what most people will need. Without adequate savings, retirees risk running out of money in their later years, especially considering healthcare costs, inflation, and unforeseen expenses.

Retirement may last 20 to 30 years or more. With rising life expectancy—currently 76.4 years in the U.S. (CDC, 2023)—and increased uncertainty around the future of pensions and Social Security, personal savings are more critical than ever.

The 80% Replacement Rule

A common guideline is the “80% income replacement rule”, which suggests that you’ll need about 80% of your pre-retirement income annually to maintain your current standard of living during retirement. Why not 100%? Because you’ll likely no longer need to pay payroll taxes, save for retirement, or commute to work. However, your personal replacement rate may vary depending on lifestyle, location, and health.

Example:

If your current annual income is $75,000

You’ll need: $75,000 × 80% = $60,000 per year in retirement

For a 25-year retirement, that totals $1.5 million, not accounting for inflation or investment returns. This is where savings, investments, and Social Security come in.

How Much Should You Save? General Benchmarks

Several financial institutions and experts offer benchmarks to help determine if you're saving enough.

Fidelity Investments recommends the following milestones:

• By age 30: 1x your salary saved
• By age 40: 3x your salary
• By age 50: 6x your salary
• By age 60: 8x your salary
• By age 67: 10x your salary

So, if you earn $70,000 per year, by age 67 you should aim to have $700,000 saved.

These figures assume you begin saving 15% of your salary at age 25 and invest with a moderate portfolio earning around 5–7% annually.

The 4% Rule: A Withdrawal Strategy

The 4% rule is a popular retirement planning tool. It suggests you can safely withdraw 4% of your retirement savings each year, adjusted for inflation, without running out of money for at least 30 years.

Example:

If you’ve saved $1 million, 4% equals $40,000 annually

Add Social Security or pension income, and you may comfortably meet your 80% income replacement goal

This rule isn't foolproof, especially in low-return environments, but it provides a solid framework for estimating retirement needs.

Social Security: A Partial Safety Net

Social Security is still a vital source of income for many retirees, although it’s unlikely to cover all your expenses. According to the Social Security Administration, the average monthly benefit for retired workers as of 2024 is about $1,900, or $22,800 per year.

That means for someone needing $60,000 annually, Social Security might cover around 38% of expenses—leaving the remaining 62% to be funded through personal savings or other income sources.

How to Catch Up If You’re Behind

If you find yourself behind on retirement savings, you’re not alone - and there are ways to catch up:

1. Maximize Contributions

For 2024, you can contribute up to $23,000 to a 401(k) if you're 50 or older, including catch-up contributions.

For IRAs, those 50+ can contribute up to $8,000 annually.

2. Delay Retirement

Each year you delay retirement allows savings to grow and reduces the number of years you’ll rely on them.

Additionally, delaying Social Security past full retirement age increases your benefits by 8% per year up to age 70.

3. Reduce Expenses

Downsizing your home, relocating to a lower-cost area, or minimizing discretionary spending can stretch your retirement dollars significantly.

Investment Growth: The Power of Compounding

Saving early gives your money more time to grow through compound interest. Here’s a quick illustration:

• Saving $500/month starting at age 25 with 7% annual returns: over $1.2 million by age 65
• Starting at age 35: only about $567,000
• Starting at 45: approximately $250,000

Time truly is one of your most valuable assets when saving for retirement.

🧮 Free Retirement Savings Calculator (Excel & Google Sheets)

Take the guesswork out of your retirement planning with this easy-to-use calculator. Just plug in your age, income, current savings, expected retirement age, and contribution rate - and get a projection of how much you’ll have by retirement.

📥 Download here: Access the Sanlam Retirement Calculator
(Compatible with desktop and mobile browsers)

✅ What This Calculator Includes:

• Starting age and retirement age
• Annual income and savings rate
• Current retirement savings
• Expected rate of return (investment growth)
• Automatic yearly compound growth projection
• Final estimated retirement savings at retirement age
• Optional Social Security estimation

It’s simple, editable, and ideal for individuals or couples who want a clear picture of their retirement path.

Finally: Customize Your Retirement Plan

While general rules and guidelines are helpful, the best retirement savings plan is the one tailored to your life. Factors like your desired lifestyle, health outlook, family obligations, and career path all influence how much you should save.

Use professional tools, consult a financial advisor, and adjust regularly. Retirement planning is not a “set it and forget it” task - it’s a dynamic process that should evolve with your life.

In Summary:

• Aim to replace 70–80% of your pre-retirement income
• Follow savings benchmarks (10x your salary by retirement)
• Factor in Social Security, but don’t rely on it fully
• Use the 4% rule to estimate annual withdrawals
• Start early, save consistently, and review your plan often

Planning today means freedom tomorrow. And no matter where you’re starting from, taking action now is the best investment in your future.