What Percent of Income to Save for Retirement?

How much of your income should you save for retirement?

You may have heard specific percentages presented as rules: 10%, 12%, 15%, or some other number.

But there's no single percentage that automatically works for everyone.

Your income, expenses, age, employer benefits, existing savings, and retirement goals are different from everyone else's.

The important thing is to start putting money away and build the habit of saving consistently.

Key Takeaways

• There's no universal percentage of income everyone should save for retirement.
• Saving something consistently is more important than waiting until you can hit a specific percentage.
• Take advantage of an employer 401(k) match when one is available.
• Younger workers can gradually increase their savings rate over time.
• As retirement approaches, shift part of the planning focus toward the income you'll need each month.
• Annuities can potentially fill a future income gap using a portion of your accumulated assets.

Is 10% or 15% the Right Amount?

Not necessarily.

A person earning $50,000 with significant expenses has a different financial situation from someone earning $200,000 with minimal debt.

Age matters.

Existing savings matter.

Your retirement timeline matters.

Rather than assuming one percentage is universally correct, determine what you can realistically save while still living your life.

Start With Something

If you can't afford to save 10% or 15% right now, that doesn't mean you should save nothing.

Start with 1%.

Then maybe increase it to 2%.

Then 3%.

The initial percentage matters less than developing the discipline of consistently putting money away.

As your income rises or expenses change, you may be able to gradually increase the amount.

Take Advantage of an Employer Match

If your employer offers a 401(k) match, take that benefit seriously.

For example, an employer may contribute additional money based on how much you put into the plan, subject to the terms of the employer's program.

That employer contribution can substantially increase the amount accumulating for retirement.

Understand your company's plan and the amount you need to contribute to take advantage of the available match.

Compound Growth Rewards Time

For younger workers, time can be one of the biggest advantages.

Money contributed consistently over many years has the opportunity to compound.

That's why starting early can matter even if your initial contributions aren't large.

The habit of consistently investing over a long period can be more important than trying to find the perfect investment or waiting until you think you can afford a much larger contribution.

Use the Market for Growth

For workers with a long retirement timeline, market-based investments can provide the opportunity for long-term growth.

You don't need to turn retirement saving into constant trading.

Consistent, disciplined saving and investing over time can establish the assets you'll eventually use to support retirement.

Annuities serve a different purpose.

They're designed around contractual guarantees rather than market growth.

Retirement Planning Changes as You Get Older

As you get closer to retirement, the question begins to change.

It isn't only:

How much should I save?

It becomes:

How much income will I need every month when I stop working?

That's where the concept of an income floor becomes important.

What Is Your Retirement Income Floor?

Your income floor is the amount of dependable income you need hitting your bank account to support your retirement lifestyle.

That might include:

• Social Security
• a pension
• other dependable income
• contractual annuity income

Start by estimating how much monthly income you'll need.

Then subtract the dependable income sources you already have.

The difference is your income gap.

How Can an Annuity Fill an Income Gap?

Suppose you determine that you'll need an additional amount of guaranteed monthly income beyond Social Security and other dependable sources.

A lifetime income annuity can potentially fill that gap.

Instead of asking what percentage of your portfolio should be placed into an annuity, determine the amount of income you need and then calculate how much premium is required to produce it.

That makes the decision specific to the financial problem.

Use the Least Amount Necessary

If an annuity is appropriate, you don't automatically need to put a large percentage of your retirement savings into one.

Determine the contractual objective first.

Then use the amount of money necessary to solve that objective.

The rest of your assets can remain available for growth, liquidity, emergencies, discretionary spending, and other financial goals.

Lifetime Income Is Based on Life Expectancy

If you're considering an annuity for lifetime income, age matters.

Generally, the older you are when income begins, the higher the contractual payment because your remaining life expectancy is shorter.

The same principle is visible with Social Security: delaying benefits can result in a higher monthly payment.

With joint-life annuity income, both life expectancies are considered.

Saving and Retirement Income Are Two Different Stages

It can help to think about retirement planning in two stages.

While you're working, your job is to consistently accumulate assets.

As retirement approaches, you need to determine how those accumulated assets will generate the income necessary to support your lifestyle.

The first stage is primarily about saving and growth.

The second adds the challenge of converting accumulated money into dependable retirement cash flow.

Don't Forget to Enjoy Retirement

Retirement planning isn't simply about accumulating the largest possible account balance.

Eventually, the money has to support your life.

If you've spent decades saving and have accumulated enough to meet your needs, retirement may require learning how to comfortably spend some of those assets.

Establishing a dependable income floor can help create clarity around what money is available for travel, dining, experiences, and the other things you worked to enjoy.

Where to Calculate Retirement Income

Use our annuity calculators to determine how much contractual lifetime income a portion of your retirement savings could potentially provide.

You can also work backward by entering the monthly income amount you're trying to create and comparing the premium required across multiple insurance companies.

The Bottom Line

There's no single correct percentage of income that everyone should save for retirement.

If you're early in your career, the most important step is establishing the habit of consistently saving and taking advantage of employer matching when it's available.

As retirement gets closer, start thinking beyond the savings percentage.

Determine your monthly income floor, identify any gap between the income you need and the dependable income you already have, and then decide how your accumulated assets should be used to fill that gap.

‍