4 Steps to Figuring Out How Much Money a Client Needs to Retire

2. Calculate how much you should save each year.

Now that you know how much money you’ll require, you can figure out how much you should save each year.

Aiming for a multiple of your annual earnings is a straightforward method to calculate your savings objectives. While the exact amount depends on your estimated retirement costs and the individual investments you chose for your retirement portfolio, these figures might help you get a clearer idea of where you stand.

According to Fidelity Investments, you must set aside at least 15% of your pretax income for retirement. Many other financial planners suggest saving at a similar rate for retirement, and findings from Boston College’s Center for Retirement Research back this up.

On the other hand, preparing for retirement isn’t always as simple as putting aside 15% of one’s earnings. The 15% rule of thumb assumes various things, including that you start saving in the early years of life. You’ll need to start saving at age 25 if you intend to retire by 62, or at age 35 if you wish to retire by 65.

It also implies that you’ll need an annual income of 55% to 80% of your pre-retirement salary to live a comfortable retirement. More or less may be required based on your spending patterns and medical bills. For many people, though, 55% to 80% is a good approximation.

Finally, the 15% rule will not give you a retirement fund that will cover all of your expenses. Social Security, for example, will most likely provide a portion of your retirement income. Overall, the 15% projection should give you a regular retirement income that lasts into your early 90s, at roughly 45% of your pre-retirement salary.

Not everyone can begin saving at the age of 25 or continuously save 15% of their income toward retirement. To compensate for the lack of time and accumulation, you may need to work longer, eliminate more costs, or put more of your income into retirement if you begin saving later in life or save a little less.

Fidelity offers some easy retirement savings standards by age to help measure your retirement saving progress, regardless of when you start saving or how much you can put away.

Age Multiple of Annual Salary Saved 30 1X 40 2X 45 4X 50 6X 55 7X 60 8X 67 10X