How much to save for retirement by age
Retirement feels far away until it isn't. And it's the financial goal where time works most in your favor… or against you. In this guide you'll see how to estimate how much you need, how much to save each month and why the age you start at changes everything.
1. How much money you need to retire
Follow these steps for a rough estimate:
- Estimate your yearly spending in retirement. A common rule of thumb is 70% to 80% of your current income, because some costs (commuting, a paid-off mortgage) disappear, though others (health) go up.
- Subtract your expected public pension. Check the official estimate for your country if there is one (for example, Social Security in the US or the State Pension in the UK). Whatever is left is what you'll need to cover with your own savings.
- Multiply that yearly gap by 25. This is the "4% rule": with savings of 25 times your yearly spending, withdrawing 4% a year has historically been sustainable for about 30 years with a diversified portfolio. It's a rough guide, not a guarantee.
2. The power of starting early
Look at what happens when three people save the same amount, 200 a month, at an average 5% annual return, until age 65:
| Starts at | Years saving | Total contributed | Savings at 65 |
|---|---|---|---|
| 25 | 40 | 96,000 | ≈ 305,000 |
| 35 | 30 | 72,000 | ≈ 166,000 |
| 45 | 20 | 48,000 | ≈ 82,000 |
The person who starts at 25 contributes twice as much as the one who starts at 45, but ends up with almost four times as much. That difference is compound interest working for more years.
3. How much to save each month
To reach the 300,000 in the example, at an average 5% annual return, you'd need to contribute roughly:
| Years until retirement | Monthly contribution needed |
|---|---|
| 40 years | ≈ 197 |
| 30 years | ≈ 360 |
| 20 years | ≈ 730 |
As a general guideline, people often aim to put 10% to 15% of their income toward retirement if they start young, and more if they start late. Work out your own case with the savings goal calculator, entering the return you expect.
Remember these figures are nominal: because of inflation, 300,000 in 30 years will buy much less than today. Review your target every few years.
4. Steps to get started
- Basics first: have an emergency fund and pay off expensive debt such as credit cards. It makes no sense to invest at 5% while paying 25% interest.
- Find out about your public pension and your employer's retirement plan (for example, a 401(k) in the US or a workplace pension in the UK). If your employer matches your contributions, take advantage: it's extra money.
- Learn the tax advantages your country offers for retirement savings.
- Choose diversified, low-cost products. Over so many years, a 1% difference in annual fees can eat a large share of your final savings.
- Automate your contribution and raise it every time your pay goes up.
- Leave it alone unless absolutely necessary, and review your plan once a year.
If you don't know where to start, talking to a regulated, independent financial adviser can save you costly mistakes.
Frequently asked questions
At what age should I start saving for retirement?
The sooner the better, because compound interest needs time. Starting at 25 instead of 45 can mean you need to contribute a fraction of what you'd need later for the same goal.
What percentage of my income should I save for retirement?
A common guideline is 10% to 15% of your income if you start young. If you start later or expect a small public pension, you'll need more.
Is a public pension enough?
It depends on your country and your work history. In many cases the public pension covers only part of your previous income, so it's wise to top it up with your own savings.
Simplified calculations with monthly compounding and a constant return, for educational purposes. Investments can lose value and past performance is no guarantee of future results. This article is not financial or investment advice.