I Need How Much?


The figure above is the minimum recommended amount for retirement savings, ten times the U.S. median income. Most people are shocked to learn that number. Worst of all, only 12% of retirees have saved this much, according to a recent survey by Clever. The survey also found 37% of retirees have no retirement savings. The average retirement savings for a retiree is around $170,000, far below the minimum recommended amount.

Why does such a low percentage of retirees make it to the minimum? Education and willpower. Often, people start their careers in their early 20s, and retirement is the furthest thing from their minds. When we start thinking about saving in our 30s, family, house, debt, and other life demands often supersede the need for retirement savings. This delay is the most significant detriment to your retirement savings. By age 35, it is recommended you have already saved one to two times your annual salary.

The power of compounding interest helps build your retirement nest egg. The “rule of 72” illustrates this concept well. The formula (72 divided by average earnings rate) can be applied to anything that compounds, allowing you to calculate how long it will take for your money to double. For example, if the average stock market return is 7.2%, plug it into the formula (72 ÷ 7.2 x 10 years), and you can see how long your account will take to double with earnings alone. So, with a 7.2% average return, your single annual income becomes two times your annual income in ten years, even without additional contributions. The two times becomes four times in another ten years if your average return remains steady.

However, it is rare for Americans to set aside the proper amount of money for retirement early in their careers. It is not possible for us to save enough from our current income later in our working years to reach the minimum—not to mention the retirement contribution limits from the IRS. The later you start saving for retirement, the harder it is to make up the difference.

Since contributions are limited, we try to let investments compensate for lost time. That requires us to take more risk in our portfolios to gain higher rates of return. This strategy can be detrimental since risky assets in your portfolio can cause damage if the volatility overwhelms the return in the short term.

So, be smart! Start saving 10-15% of your annual income during your 20s to start down the path to meeting your retirement target without additional stress or worry. During those first ten years of your career, you could save close to your annual salary with contributions alone. Earnings put you that much further ahead and help to make up the difference in your current salary versus your starting salary in your career. Earnings also help keep up with inflation in our daily cost of living.

If you didn’t start saving at the 10-15% mark in your 20s, don’t lose heart. Start as soon as possible to get closer to the number you need in retirement. In 2023, the IRS increased contribution limits to $22,500 for employee contributions (funds held from your paycheck). Individuals over 50 also can contribute an extra $7,500 annually to their retirement accounts. (These limits apply to 403(b) plans like the one at the Board of Retirement as well as 401(k) accounts). Also, your employer is allowed to contribute on your behalf as well. You can potentially max out total contributions to your retirement account at $66,000 ($73,500 after age 50).

The average American retiree will live in retirement for roughly 30 years. Ensuring you have enough savings to make quality of life sustainable and enjoyable requires hard work and discipline during your working years. The earlier your start, the lighter the workload will be. Staying consistent with contributions and allowing investments to compound over an extended period also provides you with resources for the future.

Knowing the target helps you shoot for your financial goals. That’s why it’s important for young people to know from the outset they will need ten times their annual salary for retirement. When they know how much they need, they can more easily do something about it.

This article was previously posted in the February/March 2024 edition of ONE Magazine.