How much should I save each year?

Savings rate: Aim to save at least 15% of your income annually for retirement—start as soon as you can.

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Who doesn’t have a retirement dream—a someday? It may be as simple as sleeping late or riding your bike on a sunny afternoon, or as daring as jumping out of a plane at age 90.

Living your someday the way you want means having a roadmap now—including how much to aim to save each year. That’s why we did the analysis and came up with four key metrics: a yearly savings rate, a savings factor, an income replacement rate, and a potentially sustainable withdrawal rate to help you create your retirement roadmap. (See chart.) 

They are all interconnected, so it is important to keep each in mind as you save for retirement, and to understand how they work together. For instance, if you want to retire earlier than 67, your savings rate and how much you need to save would likely increase. Retire later and they would generally decrease.

We will focus on each guideline in separate Viewpoints articles. (To read about all our guidelines, see the Viewpoints special report: Road to retirement.) Here we focus on the savings rate.

Aim to save 15% each year

Our rule of thumb: Aim to save at least a total of 15% of your pretax income1 each year from age 25 to age 67. Together with other steps, it should help ensure that you have enough income to maintain your current lifestyle in retirement. While 15% may seem like a lot, if you have a 401(k) or other workplace retirement account with an employer match or profit sharing, that employer match or profit sharing counts toward your annual savings rate.

Of course, 15% is just a guideline. Your annual savings rate may be higher or lower depending on when you want to retire, how you invest, and how you want to live in retirement. More on that later.

For now, let’s look at a hypothetical example. Consider Joanna, age 25, who earns $54,000 a year. We assume her income grows 1.5% a year (after inflation) to about $100,000 by the time she is 67 and ready to retire. To maintain her lifestyle throughout retirement, we estimate that about $45,000, or 45% of her $100,000 preretirement income, needs to come from her savings. (The remainder would come from Social Security.) Because she takes advantage of her employer’s 5% dollar-for-dollar match on her 401(k) contributions, she needs to save 10% of her income each year, starting with $5,400 this year, which gets her to 15% of her current income.

Is 15% enough?

That depends, of course, on the choices you make before retirement—most importantly, when you start saving, how you invest, when you retire, and how you want to live in retirement.

Here are three things you can do to take control and help make your someday come true.

1. Start early.

The single most important thing you can do is start saving early. The earlier you start, the more time you have for your investments to grow—and recover from the market’s inevitable downturns.

If retirement is decades away, it may be hard to think or care about it. “But when you are young is precisely the time to start saving for retirement,” says Ken Hevert, senior vice president of retirement at Fidelity. “You may not yet have the financial obligations of a home and family, so it may be easier to contribute more now. And you give your savings years and years to grow.”

2. Go for growth.

While saving early and consistently is critical, you will also need your money to grow. That’s why we suggest investing a significant portion of your savings over the course of your lifetime in a diversified mix of U.S. and international stocks and stock mutual funds—generally more when you are in your 20s, 30s, and 40s and less as you near and enter retirement. Stocks have historically outperformed bonds and cash over the long term. So if you are investing for a goal like retirement that is years away, it can make sense to have more of your savings invested in stocks and stock mutual funds.

Of course, stocks come with more ups and downs than bonds or cash, so you need to be comfortable with those risks. But over time, history has shown that disciplined savings and investing for long-term growth has paid off.

3. Work longer.

Our 15% savings rule of thumb assumes that a person retires at age 67, which is when most people will be eligible for full Social Security benefits. If you don’t plan to work that long, you will likely need to save more than 15% a year. If you plan to work longer, all things being equal, your required saving rate could be lower.

“Delaying retirement has a triple benefit,” says Adheesh Sharma, vice president of financial solutions for Fidelity Strategic Advisers, Inc. “You have more time to save, a shorter retirement, and higher Social Security benefits.”

Do the math: Get your number

How much should I save each year for retirement? Saving at least 15% of your income each year is our suggested rule of thumb. But the only number that really counts is yours. So use our saving rate widget (right) to estimate how much to aim to save each year.

How do I get there?

The road to retirement is a journey, and there are steps you can take along the way to catch up. Here are five tips to get started:

  • Let Uncle Sam help. Make the most of tax-advantaged savings accounts like traditional 401(k)s and IRAs. Your contributions are made before tax, reducing your taxable income, meaning you get a tax break the year you contribute. Plus, that money can grow tax free until you withdraw it in retirement. With Roth 401(k)s and IRAs, your contributions are after tax, but you can withdraw the money tax free in retirement—assuming certain conditions are met.4
  • Max and match. Got room to up your 401(k) and IRA contributions? Increase your automatic contributions as much as possible. At the very least, take advantage of your company match if you have one. That’s effectively “free” money.
  • Take the 1% challenge. Upping your saving just 1% may seem small, but after 20 or 30 years it can make a big difference in your total savings. “If you are in your 20s, a 1% increase in savings could add 3% more to your income in retirement,5” says Sharma. (Read Viewpoints: "Just 1% more can make a big difference.")
  • Catch up. If you are 50 or older, be sure to make the most of catch-up contributions to your retirement savings plans. For 2015 and 2016, employees over 50 can contribute an extra $6,000 over the $18,000 limit for their 401(k), 403(b), or other employer-sponsored savings plans for a total of $24,000. Also, you can contribute an extra $1,000 in addition to the $5,500 limit to an IRA for a total of $6,500 in 2015 and 2016.
  • Size up your portfolio. Markets can shift your investment mix. Too much in stocks can increase your risk of loss—too little can undermine growth potential. Aim to have a diversified mix of investments. At least once a year, take a look at your investments and make sure you have the right amount of stocks, bonds, and cash to stay on track to meet your long-term goals.
  • Consider your investing style. If you don’t have the skill, will, or time to manage your investments, consider an appropriate age-based target date fund or managed account, where professional managers do it for you.

Imagine your someday

Keep your eye on your dreams. Do the best you can to get to at least 15%. Of course, it may not be possible to hit that target every year. You may have more pressing financial demands—children, parents, a leaky roof, a lost job, or other needs. But try not to forget about your future—make your someday a priority, too.

Learn more

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Past performance is no guarantee of future results.
Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.
Target date options are designed for investors expecting to retire around the year indicated in the fund name. The investment risk of the target date options changes over time as their asset allocation changes. They are subject to the volatility of the financial markets, including that of equity and fixed income investments in the U.S. and abroad, and may be subject to risks associated with investing in high-yield, small-cap, commodity-linked, and foreign securities. Principal invested is not guaranteed at any time, including at or after the options’ target dates.
1. Fidelity’s suggested total pretax savings goal of 15% of annual income (including employer contributions) is based on our research, which indicates that most people would need to contribute this amount from an assumed starting age of 25 through an assumed retirement age of 67 to potentially support a replacement annual income rate equal to 45% of preretirement annual income (assuming no pension income) through age 93. The income replacement target is based on the Consumer Expenditure Survey 2011 (BLS), Statistics of Income 2011 Tax Stats, IRS 2014 tax brackets, and Social Security Benefit Calculators. The 45% income replacement target (excluding Social Security and assuming no pension income) from retirement savings was found to be fairly consistent across a salary range of $50,000-$300,000; therefore the savings rate suggestions may have limited applicability if your income is outside that range. Individuals may need to save more or less than 15% depending on retirement age, desired retirement lifestyle, assets saved to date, and other factors. See footnote 3 for investment growth assumptions.
2. For a starting age of 30 with no existing retirement savings and a retirement age of 67, the savings rate target increases to 18%. Similarly, the target increases to 23% for a starting age of 35 and a retirement age of 67. See footnote 3 for investment growth assumptions.
3. Fidelity developed the savings rate targets through multiple market simulations based on historical market data. These simulations take into account the volatility that a variety of asset allocations might experience under different market conditions. Given the above assumptions for retirement age, planning age, wage growth, and income replacement targets, the results were successful in 9 out of 10 hypothetical market conditions where the average equity allocation over the investment horizon was more than 50% for the hypothetical portfolio. Remember, past performance is no guarantee of future results. Performance returns for actual investments will generally be reduced by fees or expenses not reflected in these hypothetical calculations. Returns will also generally be reduced by taxes.
4. A distribution from a Roth IRA or Roth 401(k) is tax free and penalty free, provided the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, disability, qualified first-time home purchase, or death.
5. Fidelity’s suggested total pretax savings goal of 15% of annual income assumes a starting age of 25 through an assumed retirement age of 67, to potentially support a replacement annual income rate equal to 45% of preretirement annual income. Using the same assumptions, contributing 1% of income every year from age 25 to age 67 was found to generate 3% more income in retirement. See footnote 3 for investment growth assumptions.
Guidance is educational in nature, is not individualized, and is not intended to serve as the primary basis for your investment or tax-planning decisions. We encourage you to build a retirement plan based on your personal time horizon, risk tolerance, retirement goals, and financial situation.
Savings rate targets are hypothetical illustrations, do not reflect actual investment results or actual lifetime income, and are not guarantees of future results. Targets do not take into consideration the specific situation of any particular user, the composition of any particular account, or any particular investment or investment strategy. Individual users may need to save more or less than the savings target displayed depending on their inputs for retirement age, life expectancy, market conditions, desired retirement lifestyle, and other factors.
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