How Much Should I Save Per Paycheck To Reach My Retirement Goals?

This question is another tricky one because it depends on who is asking it. If you’re 18 and asking this question, well, I’d say you’re starting off right by asking, and if you are putting away 10% – even if you’re only making $20,000 per year, you’re saving $2,000/year and in 50 years you’d be sitting on about $2,500,000 at 10% (yes, that is 2 MILLION off someone that makes $20,000 per year). You’d have put in $100,000 and interest would have accounted for the other $2,400,000 of it. Ridiculous how compoud interest works, eh?

If you bump it to 15%, you’d be investing $150,000 and your egg would be almost 66% larger at $3,800,000! Obviously this is taking some big assumptions, being that you’re going to continue making $20,000 for the next 50 years (which I hope you’d get a raise in there at some point), the return will be 10% (this can go up and down, but it’s a safe figure to estimate by, as another tangent, if your return is 15%, and investing $2,000 per year, you’re looking at almost $16,000,000), and it isn’t taking into account inflation (usually around 3% which would peg that 16MIL down to about 4.5MIL). But that’s all you really CAN do with 50 years to play with, however, that’s the big thing, get in early.

If you’re 40 years old and wondering where to start, you’re going to certainly need some catch up against the 18 year old putting in 10%; to match with the 18 year old investing $2000/year, you’re going to need to put in $17,000 per year to hit that 2.5 million plateau. Attainable yes, but preferred, probably not. Even at 40 years old and investing $2000/year you’re still going to be looking at $300,000 by 68, which isn’t bad, and is much better than $0.

A good rule of thumb I’ve read is 10% minimum, and 15-25% preferred of your salary should go to retirement. But that, of course is an estimate and should vary depending on your age – I’d say a better breakdown would be:

18-30 years old – 10-15% of your salary
30-40 years old – 12-18% of your salary
40-50 years old – 18-25% of your salary
50+ – 25% or more of your salary

Again, they’re estimates based on a lot of generalization, but the big key is start stuffing something, even if it’s not much. It’s amazing what time can do to the almighty $.

Filed Under: 401KadviceCompensationInvestingNet WorthPortfolioRetirementROTH IRATraditional IRA

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  • I’m glad you found my article helpful. Sometimes, I wonder why I never heard and learnt about the benefits of compound interest during my stay at the university studying Economics. Thanks for the nice comment on my post.

  • hank

    @January – thanks for posting it! I agree! How great would it have been to know this 15 years ago! Kids don’t learn!

  • 10% is a very good return. If you return is less the end value could be much less (the power of compound interest). Also people often just look at the huge number like $2,000,000 and forget that inflation with the power of compounding makes that worth a lot less 30 years from now than it is today.

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  • thanks this one helps

  • This is really helpful, honestly, I do save but I don’t necessary save it for my retirement, or dedicate a portion of my income to save. Now it got me thinking, thanks for the idea.

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  • Great take on compound interest. What do you think of the fact that the better part of investment growth happens in the last 10 years, when most people begin moving their money into “safer” investments with lower yields? Does the math still work out?

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  • simple answer is the more the better.

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  •  I started saving for my retirement right after I had finished with my student loans. This helps me less worried about financial problems in the coming future.

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