Retirement is an expensive prospect, so much so that most seniors need about 70% to 80% of their former income to maintain a decent lifestyle. Social Security will provide about half that amount for anyone who's an average wage-earner; but the rest of that retirement income needs to be generated elsewhere, and for those who aren't entitled to pensions, personal savings can fill that void.

But new data from Fidelity reveals that while Americans are doing a better job of saving for retirement on a whole, they're still not contributing enough of their earnings to a dedicated savings plan. Specifically, today's workers are setting aside 10% of their income for the future, which is certainly respectable. But that's well below the 15% of income threshold Fidelity recommends for long-term savings at a minimum.

Smiling man at an office desk


If you're currently socking away 10% of your earnings for retirement, you should be proud of that accomplishment. But you should also aim to do better.

Why 10% will no longer cut it

Back in the day, financial advisors used to tell workers to save 10% of their earnings for retirement. But that recommendation has since been adjusted upward to 15% to 20%, and for good reason.

First, thanks to inflation, it's getting more expensive to live on a whole. Secondly, the rate of healthcare inflation is projected to outpace the general rate of inflation so that seniors need even more money in savings to keep up with their future medical costs. Third, Social Security cost-of-living adjustments have trended lower over the past decade than they were in the past, and beneficiaries are said to have lost 33% of their buying power since the year 2000. Without adequate savings to compensate for all of these factors, you risk falling short financially as a senior -- there's no way around it.

Now to be clear, saving 10% of your earnings for retirement is a darn good accomplishment. But let's imagine you earn $60,000 a year, and therefore save $6,000 annually for retirement. And for simplicity's sake, let's assume you continue earning the same $60,000 over the next 30 years, and you save 10% of that sum during that time. If you invest your retirement savings at an average annual 7% return, which is a reasonable assumption for a retirement plan invested heavily in stocks, you'll be sitting on $567,000 after all's said and done. That's a huge chunk of cash -- no question about it.

But watch what happens when you set aside 15% of your annual $60,000 income over 30 years, as opposed to just 10%. Assuming that same 7% return, you're looking at $850,000 in savings.

Here's how that difference could play out once you're no longer working. Imagine you collect $18,000 a year in Social Security like the average beneficiary today. If you withdraw from a $567,000 savings balance at a rate of 4%, which is what many financial experts advocate, you'll be looking at roughly another $22,700 in annual income for a total of $40,700. But if you're able to withdraw 4% of $850,000, that's $34,000 in savings plus another $18,000 in Social Security for a total annual income of $52,000. That's close to $950 extra per month.

The takeaway? You may be able to get by in retirement if you consistently save 10% of your income. But if you want to increase your chances of being able to live comfortably, aim for 15%, or even higher, if you're able to. There's really no such thing as having too much retirement savings, and the more of an effort you make to set money aside while you're working, the more you'll have to look forward to once you stop.