January 2025, Make Your Plan -
Contributing as much as you can and starting early can have the greatest impact on reaching your retirement savings goal. Most investors will rely on a combination of Social Security benefits and personal savings to fund a retirement that could last decades. Our analysis shows that, to accumulate enough money to retire, you should generally have saved about three times your salary by age 45, seven times your salary by age 55, and 11 times your preretirement salary by age 65. This multiple may vary based on your income and marital status. Reaching this goal will likely require a savings rate of around 15% (including any company plan matching contributions) over the course of your working career.
We understand the challenges individuals face in setting aside enough for retirement, and while it’s important to set your retirement savings goal at 15%, it’s OK if you can’t save the full amount today. Simply getting started and then steadily increasing your contributions can help get your savings strategy on track. (See “Saving early makes a difference.”)
"Fortunately, there are ways to fund a steady increase in your contributions without significantly compromising your lifestyle."
Fortunately, there are ways to fund a steady increase in your contributions without significantly compromising your lifestyle. Consider these four steps:
Many companies provide matching contributions in workplace retirement plans such as 401(k)s. At a minimum, make sure you are contributing enough to earn the full company match. You don’t want to leave any money on the table that could count toward your 15% total.
Assumptions: Examples beginning at age 25 assume a beginning salary of $40,000 escalated 5% a year to age 45 and then 3% a year to age 65.Examples beginning at age 30 assume a beginning salary of $50,000 escalated 5% a year to age 45 and then 3% a year to age 65. Example beginningat age 40 assumes a beginning salary of $80,000 escalated 5% a year to age 45 and then 3% a year to age 65. Annual rate of return is 7%. All savingsare assumed to be tax-deferred. Multiple of ending salary saved divides final ending portfolio balance by ending salary at age 65. This hypotheticalexample is for illustrative purposes only and is not meant to represent the performance of any specific investment option. The assumptions used maynot reflect actual market conditions or your specific circumstances and do not account for plan or IRS limits. Please be sure to take all of your assets,income, and investments into consideration in assessing your retirement savings adequacy.
Typically, 401(k) contributions are automatically deducted from your paycheck. If you don’t have a workplace plan, or if you want to invest beyond it, you can set up an individual retirement account (IRA) and have contributions automatically deducted from your paycheck or a bank account on a regular basis. If you have irregular income, automate your reminders so that you can make saving for retirement a priority. Directing money from your paycheck or bank account to fund your savings goals can help keep you from spending it on other things. When you make saving a priority, you’re more likely to achieve your long-term goals.
What’s more, automating your investing allows your assets to benefit from any compounded growth. And an automated approach helps take the emotion out of investing. The result is a disciplined savings process that reduces the chance that you’ll make impulsive changes.
Many workplace plans offer a service that will automatically increase your retirement contributions by one or two percentage points each year. Sign up for this service to start working toward that 15% target. If auto-increase options aren’t available or you’re investing outside your 401(k) plan, then schedule gradual increases into your savings plan. If you’re saving in an IRA, you may need to supplement your investments with a taxable account, since IRAs have contribution limits that may make it difficult to achieve a 15% savings rate.
A budget, or spending plan, can provide a framework to track your expenses and accommodate your savings goals. Once you understand how you’re spending your money, you can find opportunities to reduce expenses and increase your retirement savings. Our interactive budget spreadsheet can help get you started. And there are budgeting apps that can help track progress over time.
"One of the most important things you can do is to start saving what you can right now."
Keep in mind that these steps alone won’t be enough to ensure a financially secure retirement—but they can help get you closer to meeting your savings goal. And remember, it’s OK if you can’t save 15% today. One of the most important things you can do is to start saving what you can right now. Once you get started, you can work toward saving what you’ll need to fully fund your retirement.
Judith Ward, CFP®
Thought Leadership Director
Judith Ward is a thought leadership director in the Individual Investors Group within Global Distribution. Judith provides guidance on personal finance and retirement-related topics for individuals. She also partners across the enterprise to develop retirement thought leadership and T. Rowe Price perspectives and is responsible for leveraging these insights in white papers, client communications, presentations, and bylined articles. Additionally, she serves as both a subject matter expert and spokesperson for the firm, speaking at client and community events and for media opportunities. Judith has been featured nationally in print, radio, and television. She is a vice president of T. Rowe Price Advisory Services, Inc.
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This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.
The views contained herein are those of the authors as of December 2024 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.
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Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy. Actual future outcomes may differ materially from any estimates or forward-looking statements provided.
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