Retirement Savings: How Much Should I Save Each Month?

Planning to retire can feel like a daunting task, especially if you’re unsure how much to save to maintain your lifestyle. However, building a nest egg for your golden years doesn’t have to be an overwhelming endeavor.

By breaking down your long-term goals into manageable monthly and yearly contributions, the path to retirement becomes clearer and more attainable. We explain how careful planning and saving can help you meet your retirement needs and wants.

How much to save for retirement

There is no one-size-fits-all answer to how much you should save for retirement. The money you need to fund your retirement will depend on several factors, such as your ideal age to retire and your desired lifestyle.

As a general guideline, financial services firm Fidelity recommends saving at least 10 times your income by age 67 to maintain your current lifestyle in retirement. If your annual salary before retirement is $100,000, for example, aim to save about $1 million to cover your costs when you stop working.

Yes, this is a significant sum, but understanding the factors that can affect your retirement savings goals — and breaking them down into smaller milestones — can make the process more manageable. For instance, Fidelity suggests saving at least 15% of your pretax income annually for retirement.

What to consider when saving for retirement

Though the rule of thumb is to save at least 10 times your salary for retirement, the exact amount you set aside annually will depend on several factors. To create a retirement savings plan that works for you, consider the following points.

How long you have to save

The amount of time you have to save for retirement is an important factor. Simply put, the sooner you start to save, the more time your money has to grow. This is due to the power of compound interest — interest earned on both your contributions and accumulated interest.

Starting to save for retirement at age 25, for example, gives your money decades to grow and work for you. But if you begin saving later in life, you’ll need to put away more each month to build a similar retirement fund.

To help you stay on track with your retirement savings goals, financial experts suggest using these age-based milestones as savings targets.

Keep in mind that these are general recommendations and may not fully reflect your financial situation. If you fall behind on your retirement savings goals, don’t panic. You can take steps to get back on track, including increasing your contributions and exploring alternative income sources.

How much you earn and spend

Your financial situation — specifically your earnings and living expenses — will play a key role in determining how much you can set aside for retirement each month. The amount of money you earn directly affects your ability to save, and naturally, a higher income will allow for larger retirement contributions.

You’ll need to consider not only what you make but also what you spend.

If a large portion of your income goes toward high-interest debt, you’ll have less flexibility in your budget to grow your retirement accounts. This doesn’t mean that saving is impossible, but you may need to improve budgeting, reduce debt and find other ways to free up funds for your future.

How you will spend retirement

How you want to live in retirement will significantly affect the amount you need to save. There’s a big difference between a quiet retirement at home and one filled with international trips or expensive hobbies.

Consider the following factors to determine whether you’re saving the right amount:

• Where you plan to live: Housing costs can vary dramatically by location. Do you plan to stay in your current home, downsize or relocate? What is the cost of living in your desired location?
• What you want to do: Do you dream of exploring the world, eating out often or pursuing costly leisure activities?
• What you may need: Paying for health care is a significant concern for retirees. Will you rely solely on Medicare, or will you need additional insurance?

Other retirement income

While your personal savings will likely fund most of your retirement, consider any additional income streams you may have during your golden years. For example, you may own a second home and rent it to generate income.

Other examples of retirement income can include:

• Social Security benefits: For many, Social Security will provide a baseline income in retirement. The amount you receive depends on your earnings history and the age you retire. It’s smart to factor this into your calculations, though it’s not advisable to rely on Social Security as your sole source of retirement income.
• Pensions and annuities: Traditional pension plans are increasingly rare. Only 15% of private industry workers in March 2023 had access to such a plan, according to the U.S. Bureau of Labor Statistics. Another stream of income may come from an annuity, if you purchased one from an insurance company. Estimate how much you can expect to receive from these sources monthly and annually.
• Investment earnings: If you diversify your investment portfolio, you may earn income from dividends or bonds. However, the return on these investments can vary, so they shouldn’t be the foundation of your retirement plans.

How to save for retirement

Now that you understand the key factors that can affect your retirement savings goals, let’s explore the practical steps you can take to start building your savings.

1. Set a monthly savings goal

Aim to save 10% to 20% of your monthly income for retirement, adjusting it based on your expected retirement expenses, according to Cincinnati-based Western & Southern Financial Group, a financial services firm.

Keep in mind that the earlier you begin saving, the less you’ll need to set aside annually to reach your goals. For example, if you start saving at 25, you’ll need to tuck away roughly 15% of your pretax income for retirement each year.

But if you put off saving until you’re 30, Fidelity suggests increasing your annual contributions to 18%. If you procrastinate until your mid-30s, you may need to save as much as 23% of your income to get back on track.

2. Automate your savings

You can make saving automatic, regardless of the type of retirement account. Most financial institutions allow you to automate your savings and schedule recurring contributions — weekly, biweekly or monthly.

If you have access to an employer-sponsored 401(k) plan, you can set a specific dollar amount to automatically transfer from each paycheck into your retirement account. If you contribute to an individual retirement account (IRA) or another personal account instead, you can set up automatic transfers with your bank from your checking or savings account.

3. Don’t neglect other savings goals

Remember that saving for retirement is not your only financial priority. Don’t overlook short- and mid-range goals, such as building an emergency fund or saving for a down payment on a home.

An emergency fund, which should typically have enough to cover three to six months of living expenses, is your first line of defense against financial surprises, such as pay cuts, medical bills and other large expenses. A rainy day fund, while smaller, can cover minor out-of-pocket costs, such as broken appliances or trips to the vet.

To balance your short- and long-term goals, create a detailed budget to allocate funds in the correct amounts across your savings accounts. Set up automatic transfers to your emergency fund and other accounts, just like you automate retirement contributions. This can help ensure that all your financial bases are covered.

4. Track your progress

Even with automated contributions, building a retirement savings plan is not a “set it and forget it” endeavor. The savings plan that makes sense when people start saving in their 20s may not be the exact road map they need as they approach their 50s.

Circumstances can change, so it’s important to monitor your finances, track your progress and adjust your strategy accordingly.

If a sudden job loss causes you to fall behind on your retirement savings, you may need to choose a more aggressive approach to get back on track. This could mean sending a larger portion of your income to retirement accounts or making catch-up contributions if you’re over age 50.

Monitoring is key to ensuring you stay on track to meet your goals and adjusting when needed.

Frequently asked questions

How much should I have in savings for retirement?

If you’re wondering how much to save for retirement, experts recommend setting age-based retirement savings goals. Here are some general benchmarks: Save an amount equal to your annual salary by age 30; save three times your annual salary by age 40; save six times your annual salary by age 50; and save eight times your annual salary by age 60.

Where should I keep my retirement savings?

You should keep your retirement savings in a dedicated retirement account, such as a 401(k), 403(b) or an IRA. These accounts offer tax advantages and are specifically designed for long-term growth.

Where should I keep my emergency savings?

Your emergency savings should be kept in an easily accessible account, such as a high-yield savings account. This ensures that your funds are safe and readily available to cover unexpected expenses while still earning interest.