I Earn $100,000 a Year. How Much Should I Save for Retirement?

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  • As a general rule, you should aim to save 15% to 20% of your income for retirement.
  • You may be able to save less if you're willing to work as a retiree and live frugally.

It may be a larger number than you think.

You'll often hear that Social Security alone won't get you through retirement. And that's totally spot-on. The average Social Security recipient this year collects $1,827 a month. That's an annual income of roughly $22,000 a year, which isn't very high.

That's why it's so important to do what you can to save for retirement, whether by signing up for your company's 401(k) plan or contributing steadily to an IRA. You could even opt to save for retirement in a taxable brokerage account if you want more flexibility with your money. The key is to be saving somewhere.

But just how much of your income should you be saving for retirement? The answer is pretty much the same no matter what you earn. But if you happen to be pulling in a $100,000 salary, you may want to aim for $15,000 to $20,000 a year in annual savings.

You may need more replacement income than you think

As a general rule, you should aim to sock away 15% to 20% of your annual income for retirement each year. This holds true whether your salary is $25,000, $50,000, $100,000, or more.

If you're thinking that sounds like a lot, remember that many seniors end up needing a good 70% to 80% of their pre-retirement income to live comfortably. And Social Security will only replace about 40% of your former income if you earn an average wage (and if benefits don't get cut universally). So the rest of that money may need to come from your savings, which explains why you have to part with so much of your income during your working years.

Of course, not all retirement plans allow you to sock away $15,000 to $20,000 a year. IRA accounts, for example, max out this year at $6,500 for savers under age 50 and $7,500 for those 50 and over. But if you don't have access to a 401(k) plan, and you're eager to save, say, $15,000 this year, you could always max out your IRA and then put the rest of that money into a traditional brokerage account.

Can you get away with saving less?

The guidance to save 15% to 20% of your annual income for retirement is really just a general guideline. And so there's wiggle room in that range to some degree.

It may be that you plan to scale back your lifestyle in retirement by downsizing, moving to an inexpensive part of the country, and just plain living very frugally. You may also be willing and planning to work part-time as a retiree. In that case, you could potentially get away with saving a bit less for retirement -- perhaps 10% to 12% of your present-day paychecks.

But for the most part, saving 15% to 20% of your earnings should set you up with a nice nest egg for retirement, especially if you invest that money savvily. So while parting with that much of your income might seem tough, remember that your future self will thank you for having made that sacrifice through the years.

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