How Much Should You Sock Away?
How much is needed to fund a comfortable retirement? There's no one-size-fits-all answer.
"Comfortable" is a subjective term. Some retirees may be content to live on 60 percent of their preretirement incomes. But others may want to travel or relocate after they leave the workforce. And that might require as much as 100 percent of their preretirement incomes–or even more.
Rande Spiegelman, vice president of financial planning at the Schwab Center for Investment Research, split the difference. In a recent study, he considered how much workers of varying ages would need to save in order to generate 80 percent of their preretirement income once retired.
"Our research found that if you're a 20-something, you should be saving 10 to 15 percent" of your paycheck each year, he says. "This is assuming you haven't saved anything up until that point."
If you're in your 30s and haven't started saving, he suggests socking away between 15 percent and 25 percent of your salary annually. "And if you haven't gotten started by the time you're in your 40s, it gets ridiculous."
This all goes back to the time value of money. The earlier you get started saving, the less you'll need to set aside each year to achieve your goals. If you start setting aside $5,000 a year at age 25, keep saving that amount until you retire at 65, and earn 7 percent a year on the savings, you'll have $1 million at retirement. But if you wait until you turn 35 to start saving, you'll have to save $10,000 a year until retirement to amass $1 million (again, assuming a 7 percent rate of return). And if you wait until you're 45, you'll have to sock away $23,000 a year to reach $1 million by age 65.
More Money Matters:
• The Sorry State of Most Nest Eggs
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