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The TurboTax Blog > Income and Investments > 401K, IRA, Stocks > Five Tips to Help You Figure Out How Much to Save for Retirement

Five Tips to Help You Figure Out How Much to Save for Retirement

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As you get more comfortable with your finances and more in tune with your personal goals, you’re probably looking for ways to improve your financial health. In fact, many of life’s greatest milestones are directly tied to your financial well being—affording your dream wedding, buying a house, budgeting for a newborn, and funding your next vacation, to name a few.

One of the most monumental crossroads of life and finance is preparing for your retirement. It’s a day many Americans look forward to and even plan their careers around, yet determining how much to save for retirement can be quite a mystery.

If you haven’t checked how much retirement funds you’ll need recently, I highly recommend it. Even if you’re off on your estimates, having some goal to work towards can be incredibly effective as motivation to get started and stay on your plan.

In this post, we’ll answer, “how much do I need to save for retirement?” and serve up five tips to help you identify (and meet) your savings goals. 

  • How Much to Save for Retirement
  • 5 Tips to Help You Estimate Retirement Savings Goals
    • Looking Beyond the Basics
    • How Much Income Do I Need?
    • What is a Ballpark Figure That Can be Used for Life Expectancy?
    • How Much Will Social Security Pay During Retirement?
    • Refining Your Retirement Plans
  • Key Takeaways

How Much to Save for Retirement

In general, experts recommend saving a minimum of 80% of your annual salary earned while working. So if your yearly salary was $80,000, you would want to budget for a retirement savings of around $64,000 per year. 

Your retirement salary ($64,000) is also known as “replacement income.” To find your total savings goal, multiply your annual replacement income by the average life expectancy post-retirement. 

Check out Mint.com Retirement Savings Calculator to help you easily determine if you’re on track to retire with enough savings based on your individual goals.

Note: The average life expectancy is 78.6 years and the average retirement age is 62. Using the provided example, you could multiply your annual retirement income target by 16.6 years to find your total retirement savings goal. 

$64,000 per year x 16.6 years = $1,062,400 total retirement savings target

If that sounds like a lot of money, you’re not wrong. But they say slow and steady wins the race, and that couldn’t be more true when it comes to retirement savings. Finding a retirement savings strategy that works for your lifestyle and financial needs certainly can be done with a good budget, tax-advantaged retirement options, and a little know-how.

Now that you have a general idea of how much to save for retirement, let’s take a moment to consider the different variables that can impact how much you may want to save, because your savings goals probably aren’t identical to your colleague’s, neighbor’s, or even your spouse’s. Everyone has different circumstances that can change how much they’ll want to have in their retirement fund once they reach their sunset years.

5 Tips to Help You Estimate Retirement Savings Goals

Here are five tips we found helpful to estimate how much money you’ll need when you reach retirement:

1.  Looking Beyond the Basics

If you’re trying to find the superficial numbers, there are several questions you need to think over and answer realistically.

  • How much income do I need for retirement?
  • What is a ballpark figure that can be used for life expectancy?
  • How much will my company pension and social security pay during retirement?
  • What do my retirement plans entail?
  • Do I have other assets that may be able to bolster my savings once I reach retirement?

2.  How Much Income Do I Need?

One of the most common rules of thumb given with retirement is that you plan to have around 8-10 times your current annual income, or 80% of your annual salary for each year of retirement.

While it’s convenient to have something to base the figure on, I think this doesn’t consider changes in your expenses at retirement.

When estimating, try to consider what will be different from your current expenses when you retire? Will you have a mortgage to pay? What do you think your health insurance and medical expenses will be? Will you be helping your children with college?

3.  What is a Ballpark Figure That Can be Used for Life Expectancy?

This is probably the most uncomfortable question to address as most people don’t like talking about their own mortality.  According to the CDC, the average life expectancy in the United States is 78.6 years.

While predicting the future is impossible, getting some idea of life expectancy lets us know that we need to plan on having our nest egg lasting a couple of decades.

4.  How Much Will Social Security Pay During Retirement?

One huge question that Generation Y and Millennials have to answer is whether or not they will include Social Security as a part of their retirement plans.

While there are those who think it will not be around when it’s time to quit, most people figure there will be something, even if it’s much lower than current amounts.

For us, we’ve decided to not include Social Security in our plans and instead count it as a bonus should we get it.

5.  Refining Your Retirement Plans

Looking at the numbers, I see that we need to increase our retirement contributions for our Roth IRAs. We’ll have to review our budget later this week and see how we can optimize our budget so we can get closer to reaching the annual contribution maximum of $ 6,000 each for 2021 (we’re both under 50).

Key Takeaways

Answering the question of how much to save for retirement isn’t as straightforward as you might have hoped. Because everyone’s financial and personal circumstances are so different, it can be difficult to nail down an exact number to shoot for—if you’ll have a mortgage to pay once you retire, you’ll probably need to budget more money than if your home’s been paid off by then.

As a general rule, experts recommend saving around 80% of your annual salary earned while you were working. As you begin planning your cheerio to the career world, keep our five tips in mind.

How many of you have calculated how much you need to have for retirement? How did you get that amount? For those already retired, what expenses did you over and/or underestimate?

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