If you start saving at varying ages then how much of your income should you save towards retirement?
He is the short answer :
age | target % |
22 | 10% |
25 | 12% |
30 | 15% |
35 | 19% |
40 | 24% |
45 | 29% |
50 | 37% |
55 | 46% |
So simply put if you start saving from $0 on the age in the left column then you ought to try and save the % of your income in the right column. A 22 year old could target retirement savings of 10% but a 50 year old ought to save 37%.
I figured the table above based on the following assumptions. a) your income will increase 3% a year, b) your investments will grow at 8% annually, c) you'll use the 4% withdrawal rate at retirement, d) you'll receive social security payments enough to replace 20% of your working income, e) you won't need to replace ~7% of your working income due to lack of social security/medicare taxes during retirement, f) you also wont' need to replace the % of income towards retirement savings
So working through an example. Say you start your retirement savings at age 35. If you save 19% of your income then that will grow over 30 years to be enough to replace about 53% of your working income. Your working income less 7% for SS/medicare, less the 19% savings gives you about 74% of your income to live off during the working years. If your social security replaces 20% of your working income then replacing 53% of your working income with your retirement savings will give you the same money post retirement that you lived off during working years.
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