Among the many personal finance rules of thumb, you're advised to save 10% of your pre-tax income each year. Sounds good, doesn't it? I mean, it's a rather significant sum. If the advice were to save 3%, I'd scoff and be suspicious. But 10% seems like a lot. But for many of us -- even you -- it may not be. There are a number of factors to consider when crafting a proper savings plan.

For starters, how old are you? If you're 56 years old, you'd like to retire at 65, and you haven't saved anything yet for your retirement, well ... 10% probably isn't going to do it. (That's another factor: how much you have socked away already.)

In Money magazine last year, Walter Updegrave argued this very point. He also offered a quick calculator to help you determine how much you might need to save. Here are some results I got from it, for 45-year-olds with a current salary of $80,000 who want to retire on 80% of their pre-retirement incomes:

Saved so far

Need to save yearly















See what a difference saving makes?

Let's run it again, this time with people of varying ages who have $80,000 salaries and $200,000 saved so far. As you can see, the earlier you start, the easier it is to reach your goals:


Need to save yearly















How it's invested
There's another factor to consider: How your money is invested. After all, having $300,000 socked away so far might sound great, but if it's almost literally socked away -- that is, stuffed into your sock drawer for several decades -- it won't grow at all. (It will actually erode in value, due to inflation.)

You can earn a few percentage points on it per year via CDs, or you might opt for bonds. Then there are broad-market index funds, which have averaged around 10% annually over the long haul (but which might average considerably more or less during your particular time frame). If you'd like to aim higher, might I suggest some solid mutual funds?

The Janus Contrarian (JSVAX) fund, for example, has averaged annual returns of around 21% over the past five years, and its top holdings recently included Zimmer (NYSE:ZMH), Weyerhaeuser (NYSE:WY), and J.C. Penney (NYSE:JCP). Although some of its investments, including Owens-Illinois (NYSE:OI) and DIRECTV Group (NYSE:DTV), have done well this year, I wouldn't expect it (or any other fund) to be able to sustain such a rate. But if you get even 12% annually out of your funds, you'll increase your investment nearly 10-fold over just 20 years, and about 17-fold over 25.

Even better, park money in a Roth IRA, and you'll get to withdraw it tax-free. (Learn much more about several different kinds of IRAs in our IRA Center.)

Keep learning
Make sure you're saving and investing enough and effectively enough. It's critical to ensure a comfortable retirement.

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