It’s common for investors to have doubts about how much to save for retirement. There are no quick and easy answers to such questions because there are many moving parts to consider. Despite the complexities, retirement planners have some general guidelines that might help you discover a savings target and how long it would take to reach it.

The 15% rule of thumb

One commonly heard good idea in the investment community is the 15% rule: An investor should save 15% of annual gross income for retirement.  This rule is based on some hypothetical assumptions: 

• Saving begins at age 25 and continues until age 67
• Lifespan is age 93
• Pension income is left out of the equation
• Rate of growth for lifetime real wages is a constant 1.5% 
• Overall spending in retirement will go down compared to pre-retirement spending

Given these assumptions, researchers computed an income replacement target based on data analysis of sources like the Consumer Expenditure Survey (BLS), Statistics of Income Tax Stats, IRS tax brackets, and Social Security Benefit Calculators. Researchers came up with the following benchmarks:

• Approximately 55% to 80% of pre-retirement income would be needed to maintain a person’s lifestyle into retirement. 
• To aim to save for that target, you would need to save 15% of your pretax income every year, if you started saving at age 25.
• When taking into account likely Social Security benefits, the target figure drops to about 45% of gross pre-retirement annual income for those who earned $50,000 to $300,000 when they were working. But the availability of Social Security benefits isn’t guaranteed, so many planners exclude these from calculations.

These conditions may not apply to an individual’s own situation. The most accurate answer to the question, “How much should I save for retirement?” is “It's complicated.” 

Many factors can come into play when trying, including:

• What age do you plan to retire? 
• What lifestyle do you want to maintain? 
• How many assets do you currently own? 

Income targets can vary depending on the expert, too. The percentage of income you should save for retirement might be as low as 5% for lower-income earners to more than 15% of income for high-wage earners. Remember, these are thumbnail estimates, subject to change.

Budgeting based on projected retirement expenses

Using the 15% rule as a baseline, investors can dig deeper into individual spending patterns and make projections to determine the approximate budget required to reach the savings target. 

• Look at current monthly expenses and how they are likely to change in retirement

  . Take stock of current expenses—basic needs and discretionary spending. Next, project how spending patterns are likely to shift in retirement. For instance, health-care expenses might be higher in retirement than they would be for someone in their 30s, while housing expenses could be lower for a retiree who has already paid off the mortgage. Side note: Try Titan’s free Retirement Calculator to project how much you'll need in retirement.‍

• Anticipate potential retirement expenses not reflected in current spending patterns

  . Add these new spending categories to the total expense estimates. ‍

• Compute the replacement ratio

  . Compare two numbers, dividing estimated retirement income by current income to get the replacement ratio. For example, if current income is $90,000 and projected retirement income is $70,000, the replacement ratio would be 78%. This aligns with many studies that suggest a target ratio between 70% and 85%. ‍

• Use the 4% rule to calculate how much to save

  . This formula assumes an investor will live 30 years after retiring with a 5% average return on investments, but it doesn’t include Social Security benefits. In this case, divide projected retirement income by 4% to calculate the target nest egg needed to sustain income throughout retirement. In our example, divide $70,000 by 4% to get at a nest egg of $1,750,000. Another option is using a retirement calculator to determine how much to save annually. It’s also important to consider how long retirement savings will last. ‍

• Apply the 15% rule

  . If you were to save 15% of your income currently and into the future, you can estimate whether you are on target to your projected retirement goals. Keep in mind, though, that sudden changes in circumstances can get in the way of anyone’s best laid retirement plan. Switching jobs, starting a family, saving for college, paying off student loans, buying a house, health care—all can impact actual saving rate at various times of life.

Retirement planning by age

Finding space in the budget to keep the savings on pace can be a challenge. Many investors will look to frameworks for guidance on how much to save for retirement by age bracket.  

30 years

Some experts say if you have saved three times your annual salary by the end of your 30s, you’ll be on track. In their 30s, investors still have plenty of time for long-term investing to maximize savings and take advantage of compound interest, 401(k) contributions, Roth IRAs, traditional individual retirement accounts (IRAs), and brokerage accounts.  

40 years

By the end of your 40s, experts say if you’ve saved five times your annual salary, you would be on pace to the retirement savings target. By their 40s, investors are about midway towards retirement age. It’s possible that student loans will be paid off by this point, which could free up more money to save. They may be looking to divert some of their income toward maximizing 401(k) contributions, 401(k) rollovers to IRAs, or stocks.  

50 years

By the end of your 50s, savings that are seven times annual income should get you closing in on your final retirement goals. In their 50s, investors have a shorter time horizon to retirement. They may be making catchup contributions to employer sponsored 401(k) plans and IRAs, paying off debts, reducing discretionary spending, and even supplementing income with side gigs. 

Beyond your 50s 

As retirement draws ever nearer, investors shoot for savings that are eight to 10 times annual income. Remember, these are guidelines, and individuals might have different targets depending on time of retirement and expected changes in lifestyle that would move expenses in retirement up or down. 

Tips for saving for retirement

One of the key ways investors save is by maximizing contributions to an employer-sponsored  retirement plan such as a 401(k). Many structure their contributions to take advantage of any  employer match in which the company makes further contributions to the worker’s retirement plan. Savers also can contribute to an IRA. Some of the key features of these plans are: 

• 401(k) plans and traditional IRAs allow for tax-deferred contributions. 
• Roth IRA and Roth 401(k) allow after-tax contributions. You don’t see a tax advantage when you make the contribution, but after that, qualified earnings and distributions are tax free. 

Some other important considerations include:

Contribution limits . In 2022, the IRS increased contribution limits for 401(k), 403(b), and most 457 plans, to $20,500. SIMPLE retirement account contribution limits have increased to $14,000. The limit on annual IRA contributions remains at $6,000. 

Playing catch-up

. After age 50, investors can make higher catch-up contributions. 

• For 401(k), 403(b), most 457 plans, catch-up contribution limits are $6,500 for 2022.  This means participants over 50 can contribute as much as $27,000 in 2022. 
• For IRAs, individuals over 50 can contribute an additional $1,000. 
• For SIMPLE plans, an additional $3,000 in catch-up contributions are allowed. 

The bottom line

The 15% of your income rule, the 4% rule, decade by decade benchmarks, and retirement calculators are useful tools for discovering a target for how much to save for retirement each month. But these measures rely on rough estimates and changing variables. It’s hard to apply general rules of thumb, but the longer your savings timeline, the greater the chances are of closing in on a retirement savings target.