Money Girl

How Much Retirement Savings You Should Have by Age

Episode Summary

Figuring out how much you should save for retirement can seem more like an art than a science, especially if you’re unclear about critical planning variables. That’s why having a benchmark for the amount to save by age can be helpful.

Episode Notes

Laura reviews ways to calculate the retirement savings you need and exactly how much you should have by age to keep your goals on track.

Money Girl is hosted by Laura Adams. A transcript is available at Simplecast.

Have a money question? Send an email to or leave a voicemail at 302-365-0308.

Find Money Girl on Facebook and Twitter, or subscribe to the newsletter for more personal finance tips.

Money Girl is a part of Quick and Dirty Tips.


Episode Transcription

Figuring out how much you should save for retirement can seem more like an art than a science, especially if you’re unclear about critical planning variables. That’s why having a benchmark for the amount to save by age can be helpful. 

This show will cover typical sources for retirement income, how much you’ll need, the best investment accounts to use, and savings goals by age. Whether you’re just getting started or have been investing for decades, keep listening to ensure your retirement is on track.

Hi, everyone, and thanks for joining me this week! My name is Laura Adams, and I’m a personal finance expert and author who’s been hosting the Money Girl Podcast since 2008. My most recent title is Money-Smart Solopreneur–A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers, which was a No. 1 Amazon New Release.

Here on Money Girl, my mission is to help you get the knowledge and motivation to prioritize your finances, build wealth, and have more security and less stress. Every episode is a mini-money training designed to help you take your financial life to the next level. So, if that’s what you’re looking for, subscribe to the show. 

And thank you if you’re already a long-time listener! If you’re enjoying the show or have a personal finance or small business question, you can leave a message 24/7 at 302-364-0308. You’re also free to email me via my contact page at

How to plan your retirement income

Having a secure retirement means you can passively generate enough income to preserve your desired standard of living without having to earn it from a job or business. After you retire, your spending will probably be similar to your current costs for food, housing, clothes, and entertainment. 

Some retirees choose to downsize to a less expensive home or cut expenses like transportation. But some of your future costs, such as healthcare, hobbies, and travel, will likely increase. 

A typical retirement goal is to create income equal to 70% or 80% of your pre-retirement income. For instance, if you earn $100,000 per year on average in the years leading up to retirement, you might need a minimum of $70,000 to enjoy a similar lifestyle. But if you don't intend to reduce your standard of living or expect higher expenses in the future, you might plan for more than 100% of your pre-retirement income. 

Once you know how your retirement spending could stack up to your current budget, you can quickly determine how much you need to save. I'll explain how to do that in a moment.

The role of Social Security retirement benefits

A significant factor in how much you’ll need to save for retirement may be your future income from Social Security retirement benefits. Social Security is a mandatory U.S. federal program that provides financial assistance to qualifying citizens who are retired, disabled, or survive a relative who received benefits. 

You’re eligible for Social Security retirement benefits after you work for at least 40 quarters or ten years. The program gets funded from payroll and self-employment (SE) taxes you pay during your career. However, many state and local government workers—such as teachers, police officers, and firefighters—don’t pay into Social Security and usually get a pension instead of Social Security retirement benefits.

How much retirement income you receive is based on the average of your highest 35 years of earnings. If you worked fewer than 35 years, the missing years get counted as $0 income, which brings down your average. And if you worked more, only your highest-earning years are considered.

The program taxes earnings up to an annual threshold, which has increased over time. For 2023, the Social Security tax for employees is 6.2% of earnings up to $160,200, known as the wage base. Your employer pays an additional 6.2% on your behalf, adding up to a total annual tax of 12.4%. 

If you're self-employed, you pay 12.4% into the Social Security system by paying the self-employment tax up to the annual income threshold. Remember that any earnings that don't have Social Security and Medicare taxes withheld or business income you don't pay self-employment taxes on won't get factored into your future benefits.

LISTEN ALSO: Understanding Your Social Security Retirement Benefits

How to factor in Social Security retirement income

The Social Security retirement benefit you receive varies widely depending on your age when you begin taking it. Everyone has a "full retirement age" or FRA when you can first claim full or unreduced benefits. If you were born between 1937 and 1959, your FRA is 66. But if you were born in 1960 or later, your FRA is 67. 

However, no matter when you were born, you can elect to take early retirement benefits starting at age 62. If you retire before your FRA, your benefits get permanently reduced. And when you delay benefits past your FRA, they increase 8% annually to age 70. 

So, if you're in good health and can continue working, or have other income sources, waiting to claim retirement benefits is an easy way to boost your monthly income for the rest of your life. 

According to the Social Security Administration, if you turn 62 in 2023 and begin early retirement, your benefit would be about 30% lower than if you started at your FRA of 67. And if you're wondering what the maximum retirement could be, it was about $4,500 a month in 2022.

There are many factors to consider when deciding when to start retirement benefits, such as your income sources, life expectancy, and spouse's situation. So always get personalized advice from a financial advisor for help making the best decision.

How much Social Security retirement income do you get?

Since how much you'll receive in Social Security benefits is a huge factor in how much you should save for retirement, tracking and verifying it is essential. If you haven't already set up your online account, visit to sign up, check your earnings history, and see your estimated future retirement income and other benefits. 

It's a good idea to regularly review your reported earnings for errors since mistakes could keep you from getting all the benefits you're entitled to. 

If you're worried that Social Security won't be around by the time you retire, that's not likely to happen. While the reserve fund is getting depleted, policy changes—such as increasing the wage base or the payroll and self-employment tax rate—can raise revenue to keep the program healthy.

8 factors to consider in retirement planning

Before I cover the retirement savings you should have by age, let’s review eight factors that play huge roles in how much you’ll need. 

1. Your retirement age – is critical because the earlier you need income, the more you must save. Most people use the age they'll start receiving Social Security as a default. But if you accumulate a large nest egg, you can retire earlier.

2. Your existing savings – plays a significant role in how big your nest egg will be at retirement. The sooner you begin saving, the more compounding interest works in your favor to grow your balance.  

3. Your average pre-retirement investment return – determines how quickly your investments can grow. For example, investing $200 monthly for 40 years at a 3% return would grow to $185,000. But if you get an 8% return, you'd have $700,000. That's where those investment fees and your return on investment come into play.

4. Your post-retirement investment return – is also crucial because you must get a return from a portion of your savings while keeping it safe in low-risk investments once you're retired.

5. Your future Social Security – or other income, such as a pension, is critical for accurate retirement planning. Social Security may replace 30% of your pre-retirement income if you're a typical worker.

6. Inflation – causes prices to rise, making your retirement income less valuable. It's good to know that Social Security retirement benefits get adjusted for inflation as the cost of living increases; however, they could lag significantly.

7. Your withdrawal rate – is how much money you take out of your nest egg each year. Many people believe they can live on less than their pre-retirement income. However, if you dream of lavish trips, live in an expensive area, or require costly medical care, you may need more income in retirement

8. Your longevity – is the biggest unknown when it comes to planning for retirement. If you're relatively healthy at full retirement, statistics show you'll live well into your 80s. If you have a good family health history and take care of yourself, you could need retirement income into your 90s.

RELATED: 25 Clever Ways to Save Money During Inflation

How much you need to save for retirement

So, considering all that, how much do you need to retire? Most people need to accumulate at least ten times their average annual income to generate enough retirement income. For instance, if you earn $100,000, having at least $1 million is a wise goal, in addition to your Social Security income. However, if you have a large pension, you may not need as much savings for a comfortable retirement.

To grow your savings as quickly as possible, a good rule of thumb is to regularly invest 10% to 15% of your gross income in a tax-advantaged retirement account, such as a 401(k) or a plan for the self-employed. While that may sound boring, it's the best way to accumulate a healthy nest egg. 

If you're a young investor with decades to go before retirement, consider purchasing mostly stock funds that offer high returns over the long term. As you approach retirement, protect your account from potential losses by owning fewer stock funds and more income-producing investments, such as bonds.

Retirement planning calculation examples

Let's say you earn $75,000 and want to retire at age 67 with 80% of your pre-retirement income, or $60,000. You can probably count on getting about $20,000 a year from Social Security, and the remaining $40,000 would have to come from savings, assuming you don’t have an employer pension. We’ll assume you earn a conservative 5% annual return on your nest egg and will live to age 97.

With those assumptions, how much would you need to save? Here are several examples to figure it out.

Example #1: Divide your desired annual retirement income by your earnings rate (5% or 0.05) to know how much you must save. Here’s the math: $40,000 / 0.05 = $800,000. This calculation shows you’d need to start retirement with an $800,000 nest egg. Between your investment income and Social Security retirement, you’d have $60,000 to spend.

Example #2: Multiply your income by ten for 80% of pre-retirement income. 
Here’s the math: $75,000 x 10 = $750,000. That’s pretty close to $800,000 from the previous example.

Example #3: Multiply your income by 14 to 15 for 100% pre-retirement income. Let’s say you anticipate spending as much in retirement as you do today. Here’s the math: $75,000 x 14 = $1,050,000 or $75,000 x 15 = $1,125,000. 

While there are many unknowns, these basic calculations give you a target savings number to shoot for. Plus, you might have other assets, such as a paid-for home,  income from a part-time job or business, or a pension that reduces how much you need to save to hit your desired income in retirement.

ALSO READ: Pros and Cons of Investing in a 401(k) at Work

How much retirement savings should you have by age?

One way to make sure your retirement planning is on track is to have age-based goals, such as:

That’s a rough guideline, and you may need more or less each decade before retirement based on your unique goals, such as expensive travel or relocating to an inexpensive country. Plus, you may have pension income or high medical expenses to factor into your retirement plans. 

Also, you can’t ignore what inflation will do to your retirement income. An amount that seems high today won’t have the same purchasing power in the future.

If you're not on pace to have what you'll need, it's time to increase your savings rate! For instance, if you're getting close to retirement but haven't saved at least 80% of your goal, plan on working and investing for as long as possible. 

Remember that you can make additional catch-up contributions to retirement accounts after 50. For 2023, most workplace plans allow workers over 50 to contribute an additional $7,500, for a total of $30,000. And if your employer matches your contributions, you can exceed that limit.

If you’re not sure you’re saving enough for retirement or are worried about getting a late start, get help from a certified financial planner or CFP. They can help you set the right financial goals, choose the best accounts and investments, and achieve a realistic retirement.

That's all for now. I'll talk to you next week. Until then, here’s to living a richer life.