Estimating your retirement needs can be complicated, so it's not surprising that people look for mental shortcuts to make it easier. One of these shortcuts says you should save 10% of your annual income for retirement.
Like most rules, its effectiveness depends on several factors, like your income, your life expectancy, and the kind of lifestyle you hope to have in retirement. But for most people today, 10% of their incomes might not go far enough. Here's a closer look at what saving 10% of the average person's income would actually look like by retirement.
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Here's how much the average American would have by saving 10% of their income for retirement
Median weekly earnings for full-time workers in the fourth quarter of 2024 were $1,192, according to the Bureau of Labor Statistics. That amounts to an annual income of $61,984. We'll round this up to $62,000 for our purposes.
Saving 10% would look like saving $6,200 annually, or about $517 per month. How much this is worth by your retirement depends on how long you save and your average annual rate of return. The following table gives you a ballpark of what the average person saving 10% of their income could end up with:
|
Years of Savings |
6% Average Annual Rate of Return |
8% Average Annual Rate of Return |
10% Average Annual Rate of Return |
|---|---|---|---|
|
5 years |
$34,973 |
$36,396 |
$37,876 |
|
10 years |
$81,774 |
$89,875 |
$98,876 |
|
15 years |
$144,404 |
$168,452 |
$197,116 |
|
20 years |
$228,218 |
$283,907 |
$355,334 |
|
25 years |
$340,379 |
$453,549 |
$610,145 |
|
30 years |
$490,477 |
$702,809 |
$1,020,521 |
|
35 years |
$691,341 |
$1,069,053 |
$1,681,435 |
|
40 years |
$960,143 |
$1,607,187 |
$2,745,844 |
Source: Author's calculations. All answers rounded to the nearest dollar.
There's a lot of variance here. A person able to dedicate $517 per month toward retirement from their earliest days in the workforce who earns a high annual rate of return on their savings could wind up with a substantial sum for retirement. But this isn't the reality for a lot of people.
Many aren't able to start saving for retirement as soon as they enter the workforce due to more pressing financial issues, like student loan debt and everyday expenses. And there's no way to know exactly what kind of investment returns you'll get over time. It's always safer to underestimate them than to overestimate them.
If we look at a 6% average annual rate of return and someone who didn't start saving for retirement right away, we can see that it's much more difficult to retire on the nest egg they get from saving 10% of their income per year. It's true that many Americans will get some money from Social Security and possibly a pension, but you may still need more personal savings.
What to do instead of using the 10% rule
If you prefer simple rules of thumb like the 10% rule but you're worried about short-changing yourself, consider saving 15% of your annual income for retirement instead. Keep in mind that if you qualify for a 401(k) match, you can subtract this amount from your 15% goal. If you're not able to do this, save as much as you can for now and try to boost your savings by 1% of your income per year until you get to 15%.
You could also try using a retirement calculator to help you estimate your total retirement costs and your monthly savings needs. Some calculators can also account for 401(k) matches and Social Security benefits to help you determine how much you must save on your own.
If you can't find a savings amount that works for you right now, you may have to consider delaying your retirement date. This gives you additional time to save while also reducing the length and cost of your retirement.
Once you've settled on a plan that works for you, do your best to stick to it. Automate your retirement contributions where you can so you don't forget them and remember to increase your retirement deferrals whenever you get a raise.
