How Much of My Salary Should I Save for Retirement?

Saving early for retirement can mean a higher standard of living in your senior years.
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The percentage of income you should save for retirement depends on many factors, including your current age and the age at which you hope to retire. In general, the later you begin saving for retirement, the higher the percentage of your income should be put away.

Determine How Much You Need

Look at your current annual income and determine what percentage of this income will be enough for you to live comfortably in retirement. According to U.S. News and World Report, most financial advisers recommend that you should save enough to live on 80% percent of your current salary. So if you currently make $50,000 a year, plan on having enough in retirement savings to live on $40,000 a year.

Your Current Age Determines Your Savings Formula

According to Forbes, if you start saving for retirement at age 25, you should save 15 percent of your annual income. If you start any later, the formula is to add 1 percent of your income for every year you delay starting your savings — assuming you're still in your 20s (in other words, if you start at age 28, save 18 percent of your income). If you're starting to save in your 30s, the rule of thumb is to add 2 percent. So if you start at age 35, your goal should be to save 25 percent of your annual income.

Consider Your Desired Retirement Age

The formula listed above is for those hoping to retire at age 65. However, there are many advantages to waiting until age 70 to retire. According to the Boston College Center for Retirement Research, by waiting until age 70, your Social Security payments will be higher, your investments will have had five additional years to mature, and you'll have five less years of retirement savings to acquire.

Other Factors, Including Uncle Sam

The future Social Security is uncertain. When planning for retirement, consider that the availablity and amount of this income may have changed by the time you retire. Also realize that being retired doesn't mean that you no longer have to pay taxes. According to the Michigan Retirement Research Center, out of married, college-educated couples, only 3 out of 4 people are prepared for retirement when taking taxes into account.

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