How Much Do You Need to Save to Retire?

For many Americans, the single biggest financial goal of their lifetime is saving enough money for retirement. Unfortunately, there's no universal answer to the question of how much money is enough.

Rules Of Thumb

The typical American should aim for savings of between $1 million and $1.5 million by the time they reach retirement, according to AARP. Another rough guide is to aim to save between 10 and 12 times your current annual income. 

The average American retires at age 63 and spends 22 years in retirement. Another rule of thumb for retirement budgeting is that it’s typically safe to withdraw 4 percent of retirement savings per year of retirement. This rule of thumb can be used in reverse to determine how much to save.

Estimate your annual retirement spending and divide by 0.04 to reach a rough estimate of a target savings goal. For example, a person who plans to live off of $25,000 per year in retirement would simply divide 25,000 by 0.04 to reach a retirement savings target of $625,000.

Tracking Progress

While having a target in mind is always a great idea, the most important part of retirement saving is tracking your progress. No matter how confident you are in your target savings goal, it doesn’t do any good if you’re only 10 percent there by the time you’re 60.

One rule of thumb for tracking retirement savings is based on current salary:

Have one years' salary saved by age 30.

Have three years' salary saved by age 40.

Have six years' salary saved by age 50.

Have eight years' salary saved by age 60.

Universal Rule

Retirement saving can be intimidating, and thinking about accumulating a nest egg of $500,000 or more can be overwhelming. Despite the many different retirement saving strategies and rules of thumb, there's one universal rule that's true without exception: whether you’re age 25 or age 45, it’s always better and easier to start planning and saving for retirement as soon as possible.