What You Really Should Be Saving For Retirement


How much are you putting away for retirement? And is it enough? On average, Americans participating in defined contribution plans—such as 401(k)s—are socking away only 6.2% of their income every year, according to Vanguard’s “How America Saves 2017” report.

That’s a start, certainly, but it’s probably not enough to build the nest egg you’d like to have at age 70. And consider that 21% of employees who are eligible to enroll in their employer’s savings plan don’t participate at all.


Although financial planners vary when it comes to what people should be saving, many of them believe clients should be saving 20% or more toward retirement. “When clients balk, I remind them that the money has to last a third of their lifetime,” says Judy McNary, a financial planner in Boulder, CO.

Here’s what you consider when setting your own savings rate:

How old are you? The younger you are, th e longer you have until you leave the working world (if traditional retirement still exists when you get there). So you can put less away and still achieve your goals through the power of compound interest. “If people start saving at the beginning of their career, then 10% per year should be enough to allow them to replace their final income when they retire,” says Ryan Poage, a financial planner in Kansas City, MO. “The longer they wait, the more unattainable the percentage.”


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How much does your employer match? Financial advisors generally agree that you can count your employer match toward your overall savings percentage. When you add that number in, 401(k) participants are saving an average of 10.9% a year, according to Vanguard. That said, i t’s smart to hit your savings goal on your own, without your employer match, in case you switch to a job with no match. “This gets people used to putting in larger contributions,” says Stephen Jordan, a financial planner in Peoria, IL.


What do your local teachers save? One way to think about how much you should be saving is to compare your savings rate to a traditional pension plan. “Our local teacher’s pension program requires the employee to contribute 14% of their earnings and the employer also contributes 14%,” says Mark Beaver, a financial planner in Dublin, OH. “That means each year, 28% of their earnings are going into the pension. A 28% savings rate is not feasible for most people, but it does drive home the point that most individuals need to be putting more away.”


If you aren’t hitting the goal you’ve set for yourself, here are some strategies for cranking up your savings rate:

Save fir st. Aim to have savings pulled from paychecks automatically or have savings transferred out on paydays, so it’s the first thing that happens to your money. “Saving should not be what you have left, it should be treated as an expense,” says Vincent Barbera, a financial planner in Berwyn, PA. “To build up their tolerance, I will have my clients build up to the 20% target by saving excess money to a bank account so they are reconditioned to spend upwards of 20% less than they used to spend.”


Bump up saving with raises. Whenever you get a salary bump, increase your retirement contribution rate. “It is very common for clients to get a raise and allocate most or all of it to discretionary spending,” says Michael McKevitt, a financial planner in Palatine, IL. “If you are not increasing your savings rate along with the increased salary throughout your career, it will be difficult for your savings to sustain the lifestyle throu ghout retirement.”

Bump up savings regularly. If it hurts too much to increase savings all at once, do it a little at a time. Sign up for your 401(k) plan’s auto-increase function, or set a calendar reminder every six to 12 months to add another 1% to your contribution rate. “Each year increase your contributions until you reach the maximum amount of $18,000,” says Cindy Turkington, a financial planner in North Oaks, MN.

Focus on what you can do. If what you need to save seems impossible, don’t give up. Just save as much as you can, and keep working on inching your way up the savings scale. “Otherwise the knee-jerk reaction is to say, ‘Well, I’ll just work forever,’ and then not even try to bridge the savings gap,” Poage says. “And of course, hardly anyone is able or willing to work until they die.”