How much money should you save for a comfortable retirement?

Many Americans are worried and confused when it comes to saving for retirement.

One of those pain points: How much should families put aside to give themselves a good chance at financial security in old age?

More than half of Americans lack confidence in their ability to retire when they want and maintain a comfortable life, according to a 2024 poll by the Bipartisan Policy Center.

It’s easy to see why people are unsure about themselves: Saving for retirement is an inexact science.

“It’s really a tough question to answer,” said Philip Chao, a certified financial planner and founder of Experiential Wealth, based in Cabin John, Maryland.

“Everyone’s response is different,” Chao said. “There is no magic number.”

Why?

Savings rates vary from person to person based on factors such as income and when they started saving. It’s also basically impossible for anyone to know when they’ll stop working, how long they’ll live, or how financial conditions might evolve—all of which affect the value of a nest egg and how long it should last.

That said, there are guidelines and truisms that will give many savers a good shot at getting it right, experts said.

“I think a total savings rate of 15% is probably the right place to start,” said CFP David Blanchett, head of retirement research at PGIM, the asset management arm of Prudential Financial.

The percentage is a portion of the saver’s annual income before taxes. It includes any money workers may receive from a 401(k) match.

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Those with lower earnings — say, less than $50,000 a year — could probably save less, perhaps about 10%, Blanchett said, as a rough approximation.

Conversely, higher earners — perhaps those making more than $200,000 a year — may need to save closer to 20%, he said.

These disparities are due to the progressive nature of Social Security. Benefits generally make up a larger portion of the retirement income of lower earners compared to higher earners. Those with higher wages must save more to compensate.

“If I make $5 million, I don’t really care about Social Security because it’s not going to hurt,” Chao said.

Households need to have a basic idea of ​​why they’re saving, Chao said.

The savings will help cover at least essential expenses like food and housing throughout retirement, which can last decades, Chao said. Hopefully there will be additional funding for non-essential expenses such as travel.

This income generally comes from a combination of personal savings and Social Security. Among those resources, families generally need enough cash each year to replace about 70% to 75% of the wages they earned just before retirement, Chao said.

Fidelity, the largest administrator of 401(k) plans, sets the replacement rate at 55% to 80% for workers to be able to maintain their lifestyles in retirement.

Of that, about 45 percentage points would come from savings, Fidelity wrote in an October analysis.

To get there, people need to save 15% a year between the ages of 25 and 67, the firm estimates. The rate may be lower for those on pensions, he said.

Savings rates also increase for those who start later: Someone who starts saving at age 35 would need to save 23% a year, for example, Fidelity estimates.

Here’s a basic example from Fidelity of how the financial calculation might work: Let’s say a 25-year-old woman earns $54,000 a year. Assuming a 1.5% increase each year, after inflation, her salary would be $100,000 at age 67.

Her savings will likely need to generate about $45,000 a year, adjusted for inflation, to maintain her lifestyle after age 67. That figure is 45% of her $100,000 in pre-retirement income, which is Fidelity’s estimate of an adequate personal savings rate.

Since the employee currently receives a 5% dollar-for-dollar match on her 401(k) plan contributions, she will need to save 10% of her income each year, starting with $5,400 this year—for a total of 15% towards retirement.

However, 15% won’t necessarily be an accurate guideline for everyone, experts said.

“The more you make, the more you have to save,” Blanchett said. “I think that’s a really important piece, given the way Social Security benefits are adjusted based on your historical earnings history.”

Experts say there are several keys to overall retirement success.

1. “Start early and save often,” Chao said. “That’s the main thing.” This helps build a savings habit and gives investments more time to grow, experts said.
2. “If you can’t save 15%, then save 5%, save whatever you can — even 1% — so you’re in the habit of knowing you have to put money away,” Blanchett said. “Start when you can, where you can”.
3. Every time you get a raise, save at least a portion instead of spending it all. Blanchett recommends setting aside at least a quarter of each increase. Otherwise, your savings rate will delay your more expensive lifestyle.
4. Many people invest very conservatively, Chao said. Investors need an adequate mix of assets such as stocks and bonds to ensure that investments grow adequately over decades. Target-date funds aren’t optimal for everyone, but they provide a “pretty good” asset allocation for most savers, Blanchett said.
5. Save for retirement in a tax-advantaged account such as a 401(k) plan or an individual retirement account, rather than a taxable brokerage account, if possible. The latter will generally erode more savings due to taxes, Blanchett said.
6. Delaying retirement is the “silver bullet” to making your retirement savings last longer, Blanchett said. A caveat: Workers cannot always count on the availability of this option.
7. Don’t forget about the “dress” rules for your 401(k) match. You may not be eligible for that money until after several years of service.