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Is Saving 10% Of Your Income For Retirement Really Enough?

Is Saving 10% of Your Income for Retirement Really Enough?

There’s a reason we’re all told, repeatedly, to save for retirement during our working years. Though Social Security does serve as a key source of income for countless seniors, it’s not nearly enough to cover the typical retiree’s living costs entirely. And since pensions are rapidly becoming a thing of the past, it’s up to us, as individuals, to take savings matters into our own hands.

In fact, you’ll often hear financial experts tell you to sock away 10% of each paycheck for the future. And that can certainly do a lot for your long-term savings. But seeing as how retirement is often a costlier prospect than most people imagine, it begs the question: Is saving 10% of your income really enough, or do you need to up the ante?

A jar full of coins, with

How far will a 10% savings rate get you?

To get a sense of whether saving 10% of your income consistently will suffice in covering the bills, we’ll need to see what sort of numbers we’re talking about. The average annual salary in the U.S. is currently about $56,000, so if we take 10% of that figure, we arrive at a yearly savings of $5,600, or a monthly savings of $466.

Now let’s talk return on investment. A stock-heavy portfolio is likely to yield a 7% or 8% average yearly return, while a less aggressive portfolio might only yield 5% or 6% — or possibly less. The following table shows what a monthly contribution of $466 might amount to after 30 years based on your investments’ performance:

Average Annual Return Over 30 Years

Total Value of Retirement Savings*











You can’t help but notice the difference between an 8% return and a 4% return. While a $633,000 nest egg might very well allow you to pay the bills in retirement, especially when coupled with Social Security, a $313,000 nest egg will offer a lot less buying power.

Another thing to keep in mind is that the above calculations assume a 30-year investment window. But what if you don’t start saving right away?

Say you begin saving 10% of a $56,000 salary at age 45, and that you continue doing so for 20 years. Let’s also assume that your salary goes up 3% each year, and that you increase your contributions to stay at that 10% target. Even if your investments yield an average annual 8% return, by the time you turn 65, you’ll still only have $332,000 for retirement, because your savings window will only be two decades long. And if your investments yield a 4%…

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