Are You Saving Enough for Retirement? Here’s How to Find Out


Contributing to your retirement accounts is one of the greatest and most important investments you can make. Nonetheless, it’s easy to put off, as the monthly (or even weekly) demands of tackling our bills while trying to build up a nest egg or emergency fund are challenging enough. Not to mention, it’s difficult for many people – especially those who are young – to know just how much they should be saving for retirement.

Various calculations and rules of thumb circulate, from declaring that we should save twenty times our gross annual income, to stating more specifically that we should apportion different percentages of income to basic retirement expenses, comforts, and care. But deciding how much to save is a personal decision that hinges on personal factors – from lifestyle preferences, to current and future income levels.

The Basic Formula

On a high-level, determining an appropriate savings strategy hinges on three key questions:

  • How much you want in your retirement account in order to feel that you can comfortably, and peacefully, retire? (In other words, what number puts your mind at ease?)
  • How much time do you have until retirement?
  • Given that amount of time, how much should you save each month to ensure you hit your retirement number?

While these questions will grease the wheels for a conversation with your spouse or partner or will kickstart your own thinking about how – and what – to save for retirement, they simply are not the end of the story. Nailing down that ideal number requires carefully walking through all of the factors that will impact your financial future.

Questions to Ask Yourself

To determine how and what to save, trigger a conversation with your partner (or yourself!) by considering each of these factors.

  • What is your current position on your career path? If you are currently in school, you may not be able to save as much money as you’d like – but once you’ve accepted your first postgraduate job, you will be much freer to set money aside. If you’re currently earning little or no income, simply plan and resolve to save more aggressively in the future.
  • How stable is your job? If you face any financial risk, for instance, if you work for yourself or for a startup, you may want to save aggressively now while your cash is flowing more freely.
  • Do you have any equity in your home? What equity will you hold once you hit retirement age? In other words, calculate when you will have paid down your mortgage and how much cash that will free up in your monthly budget. If you will hit this point ten years before retirement, consider how much you can save in those ten years without having to pay your mortgage.
  • Where do you plan to retire, and what is the cost of living in that area? Dreams of retiring in the heart of Manhattan or in Southern California will naturally demand stockpiling cash but choosing to retire in your hometown (assuming the costs of living are more reasonable!) will allow you to live on much less. Determine how you want to live post-retirement and what it will take to afford it.
  • Will you receive any windfalls like inheritances or trust funds? If so, factor this into your retirement needs. When will you receive these windfalls? When will any trusts or accounts vest? Do you need to use them to pay off debts, or can you funnel that cash straight into your retirement accounts? If so, does that impact how much you need to set aside each month?
  • What about money pits that will suck your resources, like a fixer-upper home or health needs? What can you do to mitigate those costs (like moving to a lower maintenance home or setting up a Health Savings Account or Flexible Spending Account to help with medical costs)?
  • What are your assets and your liabilities? Tally them up and include property, liquid assets, and equity in your home, as well as any and all debts (from credit card balances to student loans or the balance on your mortgage). Figure out the ratio, then think about how you want to improve it. Consider factors such as when you’re projected to pay off your mortgage. At that point, how much more will you be able to pour into your retirement fund? How will that affect your overall numbers? Given that, how much should you be saving now?
  • How much are you paying an investor or financial advisor? Can you cut bait and manage your accounts on your own to save, or is your advisor helping you maximize your long-term savings?

Taking Baby Steps

Before you become overwhelmed, remember that saving for retirement is a multi-year (or event decade!) approach. Even if you lack ample liquid resources to pour into your accounts right now, think about how your financial position will change in the coming years and plan accordingly.