Most of us realize that we need to save and invest for retirement, because Social Security alone isn't likely to support us sufficiently. (Indeed, the average monthly Social Security retirement benefit was just $1,845 as of November 2023 -- amounting to just $22,000 annually.)

But how much should you be socking away for your future? One common rule of thumb has been to save 10% of your income. That's a nice round number, but it's not the optimal number for many of us.

Someone in a red short is looking upward, deep in thought.

Image source: Getty Images.

Saving 10%? Rethink that

Here are some (of many) reasons to think twice before blindly saving 10% of your income:

  • Much depends on when you start: If you save and invest 10% of your income over your entire working life, you may do OK in the long run. But if you start saving later in life, saving 10% may not be enough.
  • Much depends on how much income you'll need in retirement: If your home will be paid for come retirement and your living expenses (such as taxes, food, utilities, transportation, etc.) will be modest, then perhaps a 10% saving rate is good for you. But if you want to travel a lot and give lavish gifts, and your living expenses are likely to be substantial, then you may need to sock away much more than 10%.
  • Much depends on your health: Healthcare costs a lot for most retirees. Per the folks at Fidelity, "... a single person age 65 in 2023 may need approximately $157,500 saved (after tax) to cover healthcare expenses in retirement." Fidelity's estimate tends to increase every year, and remember that it's just an average. Millions will be spending more than that -- and, of course, millions will spend less -- and few of us know which of those two groups we'll end up in. Thus, saving more might serve you well.

So don't just assume that saving 10% will be sufficient for you. Think about your particular situation, discuss it all with your spouse if you're married, crunch a lot of numbers, and see how much you might need and/or want to save each year.

How money can grow

It's also critical to think about how you'll invest your saved dollars. After all, if you save a whopping 30% of your income for many years but invest it ineffectively, you may still end up with far less than you need.

You might try to grow your money briskly via growth stocks, but that can take a lot of time and energy -- without guaranteed results. The easiest, and arguably best, way to build long-term wealth via the stock market is to do so via low-fee, broad-market index funds.

The following table might be useful, helping you see how much you might amass over time if you save different sums over different periods of time -- with your money growing at an average annual rate of 8%. (The overall stock market has averaged close to 10% over long periods, not including inflation.)

Growing at 8% For:

$7,500 Invested Annually

$15,000 Invested Annually

5 years

$47,519

$95,039

10 years

$117,341

$234,682

15 years

$219,932

$439,864

20 years

$370,672

$741,344

25 years

$592,158

$1,184,316

30 years

$917,594

$1,835,188

35 years

$1,395,766

$2,791,532

40 years

$2,098,358

$4,196,716

Data source: author.

Other retirement rules to rethink

That 10% guideline is only one of many retirement guidelines you might reconsider. Here are a few more:

  • The 4% rule: The famous 4% rule suggests withdrawing 4% of your nest egg in your first year of retirement and adjusting future withdrawals for inflation. That offers a decent chance of having your money last 30 years, but if you start off retirement just as the stock market is retreating, that can worsen your odds. And many people these days may live long enough to have 35-40 year retirements.
  • Aiming to replace 80% of your final salary in retirement: Eighty percent may be the right percentage for many people, but it's certainly too high for lots of other people and too low for gobs of others. Each of us should try to come up with our own estimate of the income we'll need in retirement.
  • Moving out of stocks and into bonds: It's smart to regularly assess your asset allocation and readjust it as needed. But as you approach and enter retirement, think twice before moving all your nest egg from stocks to bonds. Yes, you might move some of your assets, but remember that for long periods of time, your money is likely to grow faster in stocks. And many bonds don't guarantee a good performance. Also, if you retire at 65 and live to 95, keeping some of your money in stocks means some of those dollars will have decades in which to keep growing for you.

In general, it's smart to take note of general guidelines for how to manage your money, but to always question them and to see how well they will serve you. That's a better rule to follow.