How much money should I save for retirement?

How much should you save for retirement? This is, perhaps, the burning question of our adult lives, at least as far as work is concerned. We work to afford nice and essential things in the here and now, of course, but also so our future selves can have the life we want, or think we’ll want some day in the distance.

So how much should you save for retirement? The answer, however unsatisfying, is that it depends.

It depends on your financial situation: Are you already financially independent, or close to it? Or are you paying off a mountain of debt? Do you earn a steady income that you expect to rise in the coming years? Or are you a freelancer, gig worker or independent contractor, whose income varies from month to month, year to year?

It depends on how you envision your retirement: Will you be yachting across the Mediterranean (or at least regularly flying to see the grandkids)? Or are you hoping to keep things lower-key — downsizing to an apartment in a walkable neighborhood, instead of commuting to work every day?

It depends on your health, and what age you plan to retire. Do you expect to live a few decades after leaving the workforce? Or do you anticipate medical expenses being a big cost right away?

And it depends on how old you are now. If you’re nearing 50, you might already have a lot tucked away in your 401(k) plan or a traditional IRA, or you might be facing the realization that you don’t have much time to start saving. If you’re nearing 30, however, you might think you’ve still got plenty of time to start saving — or you’ve realized that starting now will set you up well for retirement.

And heck, it depends on your attitude about money. If you think it’s for spending, because you only live once, you might be hard-pressed to sock away cash for a faraway time. If you’re a natural-born saver, you might already have a nest egg in progress.

Phew. That’s a lot to consider. So while the answer to the question to “How much money should I save for retirement” might be “It depends,” there are still a few time-tested concepts you should know about and consider. Let’s break them down for you here.

How much do you need to retire?

In spite of all the complicated considerations above, there are still some general rules of thumb when it comes to retirement.

Many experts recommend aiming to have roughly 10 times your annual salary put away by age 67. So if you make, say, $80,000 per year, you would aim to have saved $800,000 by age 67.

Given that experts also recommend aiming to withdraw 85% of your current income in retirement — in this hypothetical case, $68,000 per year — that’s enough to last nearly 12 years. And that’s before factoring in Social Security, and the fact that many retirees spend more in early retirement than they do in their later years.

Obviously, you might need more and you might need less, depending on how you envision your retirement (and what savings you might have in addition to those listed above). There are also additional complexities to consider like future salary increases, the rate of inflation, and the potential to earn a return on the money in your retirement portfolio. (For example, if you invest in a 401(k), your savings will likely earn additional money through investing.)

But with these ballpark figures, you have an idea of how much you need to retire. (And you can always use a retirement calculator to get recommendations tailored to your situation and goals, or consult with a financial advisor for a personalized retirement plan.)

How much do you already have, and how much longer before you retire?

We’ll discuss this in more detail below, but if you’re wondering how much you need to be saving for retirement, you’ll want to start by considering how much you’ve already saved, and how many years you have left in the workforce.

If you’re young and already saving, congratulations — you’re in the best possible position for a prosperous retirement. Or if you’re nearing retirement, and have been socking away the recommended 15% of your income since you started working, chances are, you’re in a pretty good spot, too.

Young and not saving? You’ve got time. And best of all, anything you put away now should compound in value in the decades to come.

Older, not yet saving? Not ideal, but with some commitment, you can still right the ship.

As for the rest of us who are somewhere in between, keep reading.

The pros of starting early

Like we said, if you’re young, you’ve got plenty of time — all the more reason to start saving early. Best of all, that money should make money, compounding your savings. Assuming a relatively conservative rate of return of about 4% on your investments, for example, each dollar you save will be worth $4 in 35 years.

And to be clear, we’re defining young as in your 20s and 30s. These are the years where you are probably earning less than you eventually will, to be sure. But every dollar you can save now will be worth exponentially more by the time you retire. For many of us, these are also the years when we are childless, or even still living at home — that is, years when there are fewer demands on our wallet, leaving more to potentially save.

And again, every dollar you put away might be worth four times as much when you retire. That means the difference between putting away $100 and $200 per month now will be nearly $90,000 when you retire — more than many people’s annual salary.

Haven’t started saving for retirement? There’s still time

If you’re in your late 30s or 40s, you might think it’s too late to start saving for retirement. Think again.

Hopefully, you’ve been able to budget enough to pay down debt and build up an emergency fund. If not, start there (and consider leaving room in your budget for retirement savings, too). Look at where you might cut back on expenses — eating out less, cutting streaming services you don’t use, downsizing your vacations — and put that money aside for retirement.

You might also need to adjust your expectations for your retirement, which in turn will reduce how much money you need.

That all said, thanks to the magic of compound interest (and generally favorable rates of return in the market over time), every dollar you save now will pay off down the road. Let’s say you’re 40 and have $20,000 already put away. If you contribute $200 to that fund, again with a conservative 4% rate of return, that fund will be worth $172,727 when you retire in 27 years — roughly half of which is from interest.

But let’s say you’re able to put away $100 more every month, and earn a 6% annual rate of return. That same $20,000 starter fund will be worth almost double: $332,028.

One more hypothetical. Say you earn $50,000 per year at age 40. You have that $20,000 fund. You put away the recommended 15% per month — $625.

Again, assuming a modest 6% return, you’ll have $587,241 in savings — more than the recommended ten times your annual salary. And even without that $20,000 head start, your savings will be worth nearly $491,000, which is almost that recommended amount for your retirement savings goal.

Starting late? Here’s what you should know

If you’re age 50 or older, you’ve probably seen and experienced enough to know that life is hard to predict, and can pull you in unexpected directions. Sometimes those surprises are good (you fall in love with a town you never thought you’d live in). Sometimes those surprises are bad, like if you’re 55 and have little to no retirement savings.

Once again, there is technically still time. But you might need to make some sacrifices.

You might need to work past 67. You might need to dramatically cut back on expenses to put away anything you can. You might need to drastically reduce your expectations for retirement.

Some silver linings: It’s possible that you’re at the height of your earning powers, having spent so many years in the workforce. If you have kids, they might be in adulthood (or close to it), thus reducing your expenses. Maybe your mortgage is nearly paid off. And while it’s emotionally painful, perhaps you have inherited some money following the death of a parent or relative.

Whatever the case, if you’re able to put away a significant amount of money now, those catch-up contributions will pay off in time for your retirement. If, for example, you can put away $1,000 per month, and your retirement fund earns a modest 6% annual rate of return, you’ll have $162,473 in savings in ten years — nearly a quarter of it from interest. (I.e., money earned by your money.)

If you already have some level of savings, that extra money might be enough to get to that recommended 10 times your annual salary. Every little bit helps. (And if you’re reading this while you’re still younger, keep it in mind when considering whether to start saving for retirement now.)

What about life insurance?

The sad reality is, not all of us make it to retirement. Term life insurance is a way of providing financial protection for your loved ones in case the worst-case scenario comes to pass.

Simply put, you purchase a coverage amount (often five to 10 times your annual salary) for the time period when you need coverage (the term). These are usually the years where you’re drawing an income, and have people (like kids or a spouse) who depend on that income for everyday expenses. A term life insurance policy is a way of making sure your loved ones have money to pay for things in case you’re not around.

At Haven Life, you can usually buy that level of coverage for less than your monthly streaming budget — for example, a 30-year-old woman in excellent health can buy a 25-year, $500,000 Haven Term life insurance policy starting at $20.81 per month. (Discover your real rate by getting a free online quote today.)

If you live to the end of your term, your coverage expires, and you’ll no longer pay premiums. And if that expiration coincides with your retirement, congratulations — we sincerely hope it’s everything you want it to be and more.