How Much Should You Save for Retirement?
There is no single right answer, since it depends on your income needs, life expectancy, health, and whether you'll have Social Security or a pension to lean on. A few widely used rules of thumb can help set a starting target.
The 10% Rule
Save 10% to 15% of pre-tax income every working year. Starting at age 25, consistently saving 10% can realistically build toward a seven-figure nest egg by retirement, assuming steady market returns over that time.
The 80% Rule
Most retirees can maintain their standard of living on 70-80% of their pre-retirement income, since expenses like commuting, work wardrobes, and retirement contributions disappear. Someone earning $100,000 a year while working might need $70,000-$80,000 a year in retirement.
The 4% Rule
Divide your desired annual retirement income by 4% to estimate the total nest egg required. Wanting $80,000 a year means targeting roughly $2 million saved, under the assumption that withdrawing 4% annually keeps the portfolio from running out over a typical 30-year retirement.
Why Inflation Matters for Retirement Planning
Inflation quietly erodes purchasing power over decades. At an average of around 2.5% a year, prices roughly double every 28 years — so a dollar saved today buys noticeably less by the time most people retire. This is why retirement calculators that only project a savings balance without adjusting for inflation tend to overstate how comfortable that balance will actually feel decades from now.
Common Sources of Retirement Income
Employer-sponsored plans (401k, 403b): Contributions are often matched partially by employers, and grow tax-deferred until withdrawal. Contributing at least enough to capture the full employer match is generally considered the highest-value first step in retirement saving.
IRAs and Roth IRAs: Traditional IRAs are funded pre-tax and taxed on withdrawal; Roth IRAs are funded with after-tax dollars and withdrawn tax-free, which can be valuable for those expecting to be in a similar or higher tax bracket in retirement.
Social Security or state pensions: In the US, Social Security is designed to replace only about 40% of pre-retirement income for the average worker, which is why it's rarely treated as a sole retirement strategy.
Personal investments and savings: Index funds, individual stocks, real estate, and other taxable investments fill the gap once tax-advantaged accounts are maxed out.