Why You Should Be Saving More Than 10% of Your Income Toward Retirement

Saving 10% of your income has long been considered a solid benchmark when planning for retirement. But is it really enough to retire comfortably?

For years, financial experts have urged employees to save 10% of their income and put it toward retirement. While 10% may be a simple and straightforward goal to pursue, in reality it may not be enough to fund a comfortable retirement.

While it’s impossible to predict exactly how much you’ll need during retirement, there are some simple rules of thumb that could help you get a ballpark estimate:

  • The rule of 25: For every dollar you need now to maintain your lifestyle, you’ll need 25 times that amount saved by retirement, according to this guideline. For example, if your yearly expenses amount to about $50,000 now and you want to maintain that same lifestyle during retirement, you’ll need to have roughly $1,250,000 saved by the time you retire.
  • The 4% rule: Another general rule of thumb is that you should withdraw about 4% of your total retirement savings during the first year of retirement. After that, you withdraw the same amount adjusted for inflation. So if you have $1 million saved, you’ll withdraw $40,000 the first year. Assuming an inflation rate of 3%, you’ll then withdraw $41,200 (that’s $40,000 x 0.03) the next year, and so on. In theory, following this rule will allow your retirement savings to last at least 30 years.

Now let’s see how saving 10% of your salary each year holds up to these guidelines once you reach retirement age.

What 10% really looks like

The average income for Americans under the age of 65 is $46,409 per year. For those aged 25 to 34, it’s just under $40,000 per year, and for 55- to 64-year-olds it’s just under $50,000 per year.

So let’s say, for example, you started saving 10% of your income at age 25 while earning a yearly salary of $40,000 and continued saving 10% per year until age 65, at which point you’re earning $50,000 per year. Assuming a yearly rate of return of 7% on your investments, here’s what your nest egg would look like by the time you retire at age 65:

Age Range Salary Total Amount Invested at End of 10-Year Period Cumulative Retirement Savings at End of 10-Year Period
25 through 34 $40,000 $40,000  $59,134
35 through 44 $44,000 $84,000  $181,374
45 through 54 $47,000 $131,000  $426,273
55 through 64 $50,000 $181,000  $912,462

So if you save 10% of your income each year and earn a 7% rate of return each year, you’ll end up with about $912,500 by age 65. Now let’s look at the rule of 25 and the 4% rule to see how that nest egg stacks up.

The rule of 25 considers your yearly living expenses (not your salary), so for this example, let’s say you need about $40,000 per year to cover all of your expenses. According to the rule of 25, that means you’ll need a nest egg of about $1 million to maintain your standard of living during retirement. In this example, you’d be a bit shy of that target, but not drastically so.

Now let’s see how your $912,500 in savings would hold up to the 4% rule. You’d withdraw roughly $36,500 your first year. Assuming a 3% inflation rate, that number becomes $37,595 your second year, $38,723 your third year, and so on. Assuming your yearly living expenses amount to $40,000 per year, you may have to tighten your budget somewhat.

These calculations also assume you’ve started saving for retirement at age 25 and have consistently earned a higher salary while continuing to contribute 10% of your income every year. (In other words, it’s essentially the best-case scenario.) If you started saving later in life, took a pay cut at some point in your career (or were unemployed for a significant period of time), or had to contribute less than 10% of your pay for a few years, you’ll have to save even more to catch up.

Let’s go back to the example above, but now let’s assume you started saving at age 35 instead of age 25. To reach that same balance of $912,500 in the 30 years you have left before retirement, you’d have to save a whopping 20% of your salary every year. For every year you delay retirement savings, you’ll have to save an exponentially greater amount of your income to reach your goal.

What about Social Security?

Many people save for retirement while banking on the fact that Social Security will help fill the gaps. And it’s true that Social Security may bridge the gap between what you’ve saved by retirement age and what you need to retire comfortably.

The average retiree receives about $1,360 per month in Social Security benefits, or $16,320 per year. Assuming you receive the average retirement benefit for 20 years, Social Security will pay you a total of $326,400. Add that to the $912,500 you’ll have saved, and it amounts to $1,238,900 — well above what the rule of 25 recommends.

However, it’s always wise to err on the side of caution when it comes to Social Security benefits. By the year 2034, the Social Security program is expected to face a cash shortage, according to a recent report by the Social Security Board of Trustees. While this doesn’t mean that the program will be eliminated entirely, benefits may be cut by up to 25% if the program isn’t reformed by then. And if you’re counting on a certain amount in benefits each month just to cover your living expenses, you may be facing a cash shortage as well.

Saving 10% of your income is a great starting goal, and you’ll be ahead of many other employees as well (less than 40% of employees contribute 10% or more toward retirement). But just because you’re ahead of the average employee doesn’t mean you’ll have enough come retirement age. Socking away even a few extra dollars each week to save more than 10% can add up over time, and it may be enough to ensure you can live the retirement you’ve always dreamed about.

The $16,122 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after.

Learn more

The Motley Fool has a disclosure policy.

This Stock Could Be Like Buying Amazon in 1997
Imagine if you had bought Amazon in 1997… a $5,000 investment then would be worth almost $1 million today.

You can’t go back and buy Amazon 20 years ago…but we’ve uncovered what our analysts think is the next-best thing: A special stock with mind-boggling growth potential.

With hundreds of thousands business customers already signed up, this stock has been described as “strikingly similar to an early Amazon.com.”

To learn more about it, click here.

You May Also Like

NAIOP South Florida Appoints Officers, Executive Board and Board of Directors for 2022

NAIOP South Florida, a Commercial Real Estate Development Association offering advocacy, education and business opportunities to its members, has announced the following officers for the 2022 Board of Directors: President:

Pride Week Festival Begins With Tribute to Pulse Nightclub Survivor

Miami Beach Pride’s week-long festivities will commence with a special tribute to the LGBTQ+ community honoring the victims of the tragic shooting at Pulse Nightclub in Orlando. A ceremonial “flip

Surfside luxury condo sees notable sales

Arte at Surfside is making waves. There’s, of course, the news that Ivanka Trump and Jared Kushner are renting at the 16-resident luxury condominium. And there’s the December penthouse sale

Up in the Air: A Discussion

In a dynamic region where residents are typically on the move, everyone is wondering about the health of the airline industry and the safety of airports and airplanes. Everyone is

Other Posts

South Florida Yachting Legend Passes

Robert “Bob” Roscioli, an icon in the South Florida marine industry, has passed away. Many recognize the name Roscioli from the widely-successful and world-renowned Roscioli Yachting Center, a full service

Four key steps

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] What a crazy time we are all experiencing. Right now, getting back to basics is most important. It is not and

Pandemic adds to worries about hurricane season

An above-normal 2020 Atlantic hurricane season is expected, according to forecasters with NOAA’s Climate Prediction Center, a division of the National Weather Service. The outlook predicts a 60% chance of

The difference between leading and managing

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] Leadership and management are often misunderstood as one in the same. They are not. Certainly, a good leader should be able

Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.