You Want To Retire Someday – How Much Should You Save Today and Should You Bother?

I think this is always in my top 10 weekly hits from the search engines so I thought I’d give it a bit more justice with a more specific post.  It’s a very general question that takes some digging to find the answer, but we’ll use the big shovel to find if you’re doing the right things at your current place in life…

If You’re 18 and Asking This Question

You’re in a place that 99.9% of the world wasn’t or hasn’t been at. You’re taking your financial future by the horns, congratulations! First off, you’re starting off on the right foot by asking yourself the question.  Ideally you’re probably not too bogged down with debt at this point.  Maybe a car loan, a first credit card with a bit of debt.

At the same time, you’re probably getting into your first job and/or steady income.  So thinking about having to give away a part of that to be used in 50 years doesn’t sound like that great of an idea, but you asked!  😉  If I were to take a time machine back to that stage in my life, I’d love to start putting away 10% of each paycheck.2k50yrs.JPG

Even if you’re only making $20,000 per year, 10% of that money is $2,000/year and in 50 years you’d be sitting on about $2,500,000 at 10% (yes, that is 2 MILLION 5 HUNDRED THOUSAND off someone that makes $20,000 per year). You’d have put in a total of $100,000 and the beauty of compound interest would have accounted for the other $2,400,000 of it. Compounding interest is pretty slick.

Furthermore, think about how your salary is likely to increase over that 50 year span. You’d likely be moving up in salary at a few different points in your life, and yes, inflation would rear its ugly head each year too but there’s not a good way to battle inflation yet.The big thing is, get in early.

If You’re 50 And Asking

You may be thinking that you’re too late in the game to start investing.  You’re wondering where to if it is worth your time.  You’re certainly going to 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.  Preferred, probably not.

Every financial advisor you talk to will tell you that it is never too late to start investing.  Yea, I see their point as 2 fold, they may try to sell you something you don’t need and figure you’ll act on it out of fear of having nothing at the end.  You “could” start tossing a little money towards your retirment in 20 years, but  at 50 years old you shouldn’t be expecting the the world.  With the same scenario as above, $2000/year you’re still going to be pocketing $112,000 of which $40,000 is your own cash.

True, it doesn’t hold a flame to the 2.5 million that your 18 year old counterpart is dumping, but it isn’t chicken scratch either.  In my honest opinion if I were in this situation, i wouldn’t be counting on “investing” as my sole nest egg; I’d be looking to other (non-stock market related) investments, business startups, inventions, partnerships, etc to bump up my chances of retiring sooner than later.  At 50, you need to have something else unless you have a spare $17k to hit that 2.5 mil bucket in 20 years.

If You’re Anywhere In Between 18-50 And Asking

A good rule of thumb is 10%.  Depending on your level of creativity, 10% is a good place to start.  I say “creativity” for the fact that it’s the most common way to bump up your funds.  It’s open to everyone who has money.  There are hundreds (if not thousands) of ways to bump up your nest egg.  Finding them is a little more difficult than contributing to a 401k or ROTH IRA.aiquote.JPG

Think of the people TAKING your money for the 401k plans.  They’re not just making magical money out of yours and giving you a sweet deal.  They’re putting your money to work for them and giving you a small portion of it back in return.  They’ve got the ideas and people that are using it.  Try to think like one of them.

I’m not saying it is a bad path though, people have done it for decades now and have done well with it.  Depending on your final goal, maybe slow and steady is the way you want to take it.  Personally I’m going for both.  I put money in my 401k and ROTH as a starter, but am always looking for new ways to grow my money faster than 8-10% a year.

The defaults that seems to be a consensus if you’re tacking down a baseline and only using the stock market for your nest egg are:

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


I’m of the mindset that Tim Ferriss brought up in the 4 Day Workweek“Retirement is worst-case-scenario insurance. Like life insurance, it should be viewed as nothing more than a hedge against the absolute worst case scenario: in this case, becoming physically incapable of working and needing a reservoir of capital to survive.“

I’m not saying to ditch your 401k and ROTH for better waters, if you have these 2 options, use them. Keep in mind that you’re going to be in the “slow and steady” boat and there’s nothing wrong with that. It’s all part of your investment threshold. If slow and steady keeps you comfortable, it’s your bag; do it how you do it.

Right now in both my 401k and ROTH I’m putting in a few more dollars due to the time I have till retirement, and the recent slide in the US economy. I think I’m buying now low at bargain prices and plan on being around the market for another 30 or 40 years.

This is not the only nest-egging that I’m doing though. I’ve got a few spare bucks out there feeling out other opportunities hoping that one of them will be my REAL net egg and my retirement accounts really WILL be my worst-case scenario insurance.

Filed Under: 401KadviceBudgetingCompensationfinancial educationFrugalNet WorthPortfolio

  • Good post. I actually believe in the slow and steady boat approach. I also wrote about this topic on my blog and have added an interactive calculator. You can check it out here

    shadox’s last blog post..Life Insurance Company Stability: More Info

  • this is a great post 🙂 i’m in my late 20’s and sadly i have not started saving at all. just a question, do i put the savings in the bank? i am not too familiar with investing the money elsewhere.

    kate’s last blog post..Sunday Grill

  • Unfortunately for everyone, I don’t think the numbers add up for just about everybody unless you start saving 20% and up of your income and/or accepting a much lower standard of living.

    Assuming 10% annual returns in stocks no longer applies, automatic economic growth is probably over.

    America is broke and so are Americans. Look outside of America for future growth.

    Kevin’s last blog post..Are We Just Beginning A Depression? Two Coming Disasters, How To Prepare And Profit If They Hit

  • Pingback: Follow Me on Twitter and the QuickHits | Prime Time Money()

  • Have you taken consideration the effects of global inflation? If inflation is 10% then your money should earn at least 11% to beat out inflation and take home 1% gain.

    JonatsGonats’s last blog post..US Market December Rally

  • Hank it’s to bad alot of 18 years and even adults don’t understand the power of compound interest it can either work for your or against you in a big way.

  • You have some great ideas here Hank! What a good read! Thank you!

  • great post Hank, but I am not in US. I know it is important to save money.

    Sherry’s last blog post..Blog Contest – Pay it Forward

  • MikeL

    Another reason to take the “slow and steady” approach: I wonder if the government will someday introduce means testing for social security retirement benefits. If/when social security starts to run out of money, I find it very plausible that congress may pass legislation such that if you have a substantial retirement account you won’t get some/all of your social security. Isn’t this worth considering when choosing investment options in your 401k? The person with the nice, safe, slow growning stable value fund might not end up worse off since the smaller account balance might mean more of a social security payment., so the folks who went more heavily into high risk funds took all that risk for less than they anticipated…plausible?

  • Pingback: Best Personal Finance Posts in 2008()

  • Great post! Very informative one! Saving money for retirement can be easy or difficult depending on your current salary. It is good to estimate how much you must save to give you the income you know is necessary for you to retire in comfort.

  • This is great info. I’m in my early 20s but my husband is in his early 30s. As the sole breadwinner, he certainly needs to be thinking about retirement.

  • Tony Aleen

    If you want to find a suitable savings account in Australia, please come to, an Australian savings account comparison website

  • I would find something safer than the stock market for retirement, or at the very least, just a portion.