Updated: Mar 14, 2024

How to Know If You're Saving Enough for Retirement?

It‘s hard to think about retirement while struggling with student loans. But an early start can make a huge difference - here‘s how to decide how much to save.
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How much should I save for retirement?

This may seem like a simple question, but the answer is quite complicated.

Financial advisors often recommend saving at least $1 million to secure a comfortable retirement.

But things are changing. People are living longer. The future of Social Security is uncertain.

And the financial markets have experienced a lot of fluctuation in the last decade. Considering all this, it's easy to see that a flat target number may not be helpful enough.

Not to mention how intimidating a number like $1 million seems.

After all, the average retirement savings for households between ages 55 to 64 is closer to $100,000.

For households between the ages of 65-74, it's just under $150,000. That’s a far cry from $1 million!

Before you lose hope, understand that you can reach your savings goal if you plan carefully and seek personalized advice.

Here are some guidelines to help you get started.

1. Set a retirement target date

The first step in figuring out how much money you need to retire is to consider how long you plan on working.

While 65 years old is the traditional retirement age, that's not a strict standard.

Sometimes it's because people can't afford to retire at 65. And sometimes people enjoy their work and don't want to retire yet.

No one can predict the future, but estimating your retirement date is important.

Many retirement accounts plan your investment based on your trajectory.

In other words, your investments will change based on how many years it will be until you retire.

These investments are called target-date funds.

They put your investment portfolio on autopilot and adjust to become more conservative as you near retirement.

For example, a younger worker may have more money in stocks. Then, as they get close to retiring, their investments will move over to bonds.

This is why it's so important to have some idea of the retirement date you're aiming for.

2. Calculate your income replacement

Many advisors estimate how much someone will need during retirement by calculating their “income replacement rate.”

The income replacement rate is the percentage of current income that needs to be replaced by retirement savings.

In general, an 80% income replacement rate is common.

So, if you currently make $100,000 a year, your retirement savings should generate about $80,000 in income each year.

Don't forget to factor inflation into this number.

While 80% is a standard income replacement rate, recent research from the Morningstar Investment Management Group found that many retirees can actually get by with 20% less.

This discrepancy is due to fluctuations in spending patterns and retirees’ unique circumstances.

This is a perfect example of how there isn’t a “one-sized fits all” approach to retirement saving.

It also highlights why it’s critical to have a Certified Financial Planner create a savings plan with you.

Tip: Anyone can sell their services as a “financial advisor,” so make sure you choose a Certified Financial Planner (CFP). A CFP is board-certified and held to specific ethical standards. These services aren’t free – most either charge a flat or hourly rate or get commission based off which products you choose. Consider using a CFP that charges a flat or hourly rate instead of commission to avoid potentially biased advice.

3. Estimate your living expenses during retirement

Since incomes can change so much throughout a person’s lifetime, it’s important to estimate your living expenses during retirement.

Most people find that they can spend less in retirement because they're no longer raising kids and likely paid off their mortgage.

Still, there are costs that retirees face that younger workers generally do not.

For example, health insurance and medical costs tend to be higher during retirement.

You may also need extra assistance like in-home help as you age.

In addition to the cost of basic living expenses, you may find that you want to do things in retirement like traveling or taking up new hobbies.

Consider how you'll want to spend your retirement and budget accordingly.

This may increase how much you need to save now, but it will be worth it later.

Tip: Make sure you factor in your taxes when planning your retirement expenses. Unless your income drops substantially, you may not be paying much less than you are during your working years. A CFP or CPA can help you calculate how much you will pay in taxes once you retire.

4. Determine how long your retirement may last

Attitudes and expectations related to retirement have changed considerably since 1950.

It used to be that people would retire at 65 and live about 15 more years.

However, the average male now has a life expectancy of 84 while the average female has a life expectancy of 87.

That means you should plan on 20 years of retirement, not 15, if you stop working at 65.

If you're in very good health, you may even want to plan for 25 years.

As we’ve pointed out, your retirement timing and goals will be unique to your personal situation.

Data from the Health and Retirement Study from the National Institute of Aging found that health problems have a major impact on when you'll retire.

In other words, retirement isn't always a choice.

Workers in poor health retire earlier, which means they need more money to live off of and pay for medical expenses.

There are many factors that contribute to when and how you'll retire. That's why it's critical to have a tailor-made savings plan.

Tip: The Social Security Administration has a free online life expectancy calculator. Check it out to get a general estimate of how long you might live once you retire.

Step 5: Prioritize your savings plan

When you’re busy juggling career, family, and student debt, it's hard to save for anything else - or to know what should be a top priority.

Should you put more toward an emergency fund and hold off on investing?

Should you save for your kid’s college fund or make more contributions to your IRA? Should you put money in stocks before your 401(k)?

While every situation is unique, here is a general guideline to how to prioritize your savings plan.


If you have access to an employer-sponsored retirement plan with a matching contribution, use it now.

It’s free money, so there's no reason not to take it!

Emergency fund

Financial experts agree that everyone needs an emergency fund, but opinions on just how large it should be vary.

A general rule of thumb is to save at least 3-6 months worth of living expenses. This may seem like a hefty goal, so take your time.

Try to start out by saving 10% of your income and slowly increasing it over time.

You can also try a free service like Digit, which analyzes your spending and automates a custom savings plan just for you.


An Individual Retirement Account (IRA) is designed to help you save for retirement and offers tax advantages.

These tax benefits allow you to maximize compounding interest to grow your retirement savings.

There are limits to how much you can put in an IRA each year, so calculate your monthly contribution.

Then put it on auto pay and max it out if you can.

Long-term savings goals

Long term savings are different than emergency funds.

Long-term savings goals include things like buying a house, going on vacation, or getting a new car.

Start out by reaching your emergency fund goal, and then contribute monthly to a long-term goal savings account.


Investing can be scary for beginners. To get started, you could try the Warren Buffet approach and invest in mutual funds.

Mutual funds are an inexpensive and easy way to diversify your portfolio.

Another option is to follow the Jim Cramer school of thought and research your own stocks. However, it's crucial to make sure you diversify. Do not put all of your savings in one or even a handful of stocks.

If you don’t have the cash to get started, there other options.

For example, Acorns is a service that rounds up your purchases to the nearest dollar and invests the spare change for you.

There are no minimums, and you can even set recurring small transfers to your portfolio.

Kid’s college savings accounts

The cost of sending children to college is growing and many parents are feeling the pressure earlier and earlier.

However, you should not compromise your retirement for your child's college fund.

College can be subsidized. Retirement cannot.

Think of it this way: Your child can always get a student loan or federal aid to help with the cost of college.

You won’t be able to get a loan to help you retire. Paying for your child’s college education is an admirable goal, just don’t sacrifice your own retirement to do it.

The Best Way to Get Started is To Go with What Makes You Comfortable

There are a lot of considerations to make when planning for retirement, something that's not so easy to do when you're still thinking about how you're going to afford adult life right now.

The good news is, if all of this seems overwhelming, then you can still make a ton of progress by simply getting started.

Start small. If your employer offers a 401(k) with a match, contribute up to that amount.

This is automated savings plus some free money from your employer.

If you don't have that option, open up an IRA and start contributing a small amount of your income each month to that.

You don't have to have everything figured out today to get started on retirement planning.

All you have to do is get into the habit of saving for retirement, which can be done through simple automation.

Then, as your life changes as the years go on, do more research and discover which options will work best for you.

There's no way to figure out retirement - or finances - overnight. All you have to do is just start something now.