Retirement: How Much Should I Save Each Month?

    Do you know how much money you should be saving each month for your retirement? Even if you are putting some money away, are you sure it’s enough?

    The long-held rule of thumb was that you should put away 10 percent of your annual income for retirement, but that estimate assumed that the average American had a secure job, started saving while very young and had reasonable expenses.

    In his article, “Why the 10% solution is actually 90% wrong,” Money magazine Editor Walter Updegrave asks, “Will you really get that early-bird start and stick to it religiously for upwards of 40 years?”

    If the answer is, “I’m not sure,” then it’s time to start crunching some numbers and developing a realistic plan for your financial future.

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    Determine Your Retirement Needs

    Before you figure out what you should save each month for retirement, first determine the total amount you’ll need to retire. According to the Center for Retirement Research at Boston College, you’ll need at least 80 percent of your current income in retirement. This is sometimes called “replacement income.” So if you earn $75,000 a year now, you’ll need at least $60,000 a year to maintain your lifestyle. Multiply that amount by your life expectancy after retirement.

    Once you know your goal, it’s time to figure out the amount to put away each month. Retirement calculators abound online, but the one offered by MSN Money is very straightforward. Enter your variables, including current age, desired retirement age, income and the amount of income you wish to replace at retirement.

    For instance, let’s say that you’re 30 years old, want to retire at age 65 and expect to live at least 25 years after retirement (age 90).

    You make $75,000 per year and would feel comfortable with 80 percent of your pre-retirement income. Assuming a return on your investments of 6 percent —a fairly conservative rate — and a 3 percent inflation rate over time, you’ll need to save at least $2,155 per month to meet your goal.

    Social Security Income and Pensions

    Social Security benefits are a major part of most people’s retirement income and can help reduce the amount of money people need to save for the future. By law, money is deducted from each of your paychecks to fund the Social Security system.

    Your benefits under Social Security will vary according to your income over your working years. In 2010 the average monthly payout for retired workers was just $1,176, according to U.S. News and World Report. This means people cannot depend on Social Security alone to provide them with a comfortable retirement. You can estimate your future Social Security benefits at the Social Security Retirement Estimator.

    At the same time, the system also faces some financial challenges. The Social Security trust fund, which has been collecting money for several decades to prepare for a surge of retirees, is expected to run out in 2036.

    By then, payroll taxes and other income will raise only enough money to cover 77 percent of program costs, unless the government considers tax increases, benefit cuts or other changes to the program. While Social Security is unlikely to disappear, taking aggressive steps to save money in other retirement vehicles is a wise move to decrease your dependence on Social Security and enhance your peace of mind.

    Pensions are another potential source of retirement income for some workers in business and government. These plans often require you and your employer to contribute money to a fund during your working years so you can receive a fixed amount each month upon retirement.

    Like Social Security, the guaranteed annual income from these plans will affect the amount of yearly replacement income you’ll need in retirement and can reduce the amount you’ll need to save each month to hit your target.

    Adding together your various sources of retirement income will tell you where you stand on the way to your financial goal. If you won’t have enough money to cover your required retirement savings, examine your monthly budget more closely.

    Look for ways to cut costs, or seek better-paying or additional employment to boost the amount you can save each month.

    Bill Fay

    Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at

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