Planning Your Retirement Savings [A Complete Saver’s Guide]

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It’s no secret: if you want to have enough money for retirement, you need to start saving ASAP.

The sad truth is that most Americans aren’t saving enough for retirement. According to the U.S. Government Accountability Office, 48% of households aged 55 and over have ZERO dollars saved for retirement.

That’s a scary number.

So, how can you avoid working until you’re 90? Check out our complete guide to retirement savings to help you with your financial planning.


How Much to Save For Retirement

The typical answer to the question of how much you should save for retirement is “as much as you can!” And that’s not bad advice. More realistically, most financial experts suggest saving around 10-15% of your pre-tax income for retirement.

To calculate your specific retirement needs, you’ll need to examine these factors:

  • Current budget
  • Expected expenses during retirement
  • Length of retirement (life expectancy)

Let’s walk through each of these factors and explain why they are essential for determining how much you need to save for retirement.

Current Budget

It is important to understand your current budget because this will help you estimate your future spending during retirement. If you don’t already have a budget, you need to start tracking your expenses right away.

There are many free tools for creating a budget. Our favorite is probably Mint because it connects to your banking accounts and automatically tracks your expenses and categorizes them.

The main categories to pay attention to for people approaching retirement age are:

  • Housing
  • Car payments and maintenance
  • Medical costs
  • Insurance
  • Travel
  • Hobbies
  • Savings

Budget During Retirement

Using Mint (or your own tracking system), figure out how much you spend on each of the above categories every month.

Then, try to estimate if those expenses will go up or down during retirement. Be realistic here. If you spend $200 on golf every month while still working, we hope that number goes up during retirement!

Also, keep in mind that medical expenses usually increase as you get older, so budget accordingly.

If you are unsure if your spending will go up or down during retirement, ere on the side of caution, it is always better to save too much than too little.

Once you have estimates for all of your monthly expenses, add it all together and multiply by 12. This is how much money you’ll need every year.

Length of Retirement (Life Expectancy)

It’s morbid to think about, but you need to factor in your life expectancy, so you know how long your retirement savings need to last. The last thing you want to worry about during retirement is, “Do I have enough to support myself?”

If you’ve taken out a life insurance policy, the policyholder might have already done life expectancy calculations for you. These companies use complex algorithms to estimate how long you live based on complex actuarial tables, health data and lifestyle statistics.

If you’re not sure, reach out and ask!

You could also go by the average life expectancy in the U.S., which is around 79 years old. But we hope every beats the average and saves enough to live comfortably well into their golden years.

Putting it All Together

Now that you have an idea of how much money you’ll spend during retirement, and how long you expect to need that money, you should have a general idea of how much money you need to save for retirement.

As an example, let’s say that I will need $50,000 annually during retirement (don’t forget to factor in inflation) to support my lifestyle (and to take a few trips every year). Let’s also assume that I expect to live a long and happy life until I am 90 years old. If I plan to retire at the age of 65, that means I will need at least enough money to last me 25 years.

25 years of retirement X $50,000/year spending = $1,250,000 needed for retirement

One important factor missing here is additional income during retirement. The number above assumes that I have no additional income, and my savings will not earn interest. We’ll talk more about income during retirement in a little bit.

The 4% Rule

Another common approach to determining how much money you need during retirement is what financial advisors call the 4% rule. The idea here is that you need to save enough money to live off of 4% of your savings every year.

This is a generally safe approach because it assumes that the remaining 96% of your retirement savings will replenish that 4% every year through investments (average S&P 500 returns since inception are closer to 10%).

So, let’s say that I have $1 million saved for retirement. If I went by the 4% rule, I could safely live off of $40,000/year without worrying about running out of money.

This particular guideline is especially popular for people from the FIRE (Financial Independence, Retire Early) community who want to retire early and not worry about their life expectancy.


How to Save For Retirement

The first thing you need to know about saving for retirement is that the sooner you start, the better. Someone who starts saving in their 20s is going to have a huge leg up on someone who waits until their 30s.

We won’t go into the beauty of compound interest, but just know this: if you save $10,000 when you are 20 years old, that money will be worth over $250k by the time you’re 70 (assuming a 7% annual rate of return).

So, how can you start saving for retirement? The two most common options are employer-sponsored retirement plans and individual retirement accounts.

Employer-Sponsored Plans

Employer-sponsored retirement plans are great because they often offer significant tax advantages, and they put your retirement savings on autopilot.

If your work offers a retirement plan, like a 401k, with a matching component (i.e., they match up to 4% of your contribution), you should contribute AT LEAST the amount needed to get the maximum employer contribution. If you don’t, you are essentially opting out of FREE money. I can’t stress this enough. There is no reason not to take advantage of an employer match.

Even if your employer doesn’t match your contribution, it is still a great idea to contribute as much as you can. And now that you have a budget, you should know exactly how much you can sock away!

If you don’t know if your company offers a retirement plan, talk to your HR department and start contributing with your next paycheck.

An increasingly popular type of employer-sponsored fund is a Health Savings Account. HSAs are designed to save money for medical expenses, but there is no reason that this money can’t be used for medical expenses during retirement!

Personal IRA accounts

If your employer doesn’t offer a 401k or similar plan (and even if they do), you can contribute to an individual retirement account (IRA). To start an IRA, you simply open an account at a brokerage and start contributing money.

For more information on brokerages, check out our article on Betterment vs. Vanguard.

There are a few different types of IRAs, with the most common being standard IRAs, Roth IRAs, SEP IRAs and Simple IRAs. We don’t have enough time or room to cover the differences between every type of IRA, so just know that each of them comes with a different set of benefits. You should talk with a professional financial advisor to find out which savings and investment vessel is right for you.

Just like with employer-sponsored plans, we suggest that you set this on autopilot with automatic contributions.


Income During Retirement

Just because you are retired doesn’t mean you have to be done earning money. In fact, making money during retirement is a great way to reduce your stress and elongate your retirement. In this section, we will discuss a few common methods for retired people to earn extra income.

Investment Returns

By the time you’ve reached retirement age, you should have a nice nest egg that can continue making money for you. Remember, you’re retired. Work smarter, not harder!

By now, we assume that you have retirement accounts (like the ones outlined above). If you do, that’s great! That means that you are already very familiar with how investments work.

Many retirees choose to shift their assets to more conservative investments like bonds (as opposed to individual stocks). Bonds are much less volatile (but have a lower rate of return), making them a safe(r) investment during retirement.

Social Security

If you qualify (and most people do), you could receive money from the government through Social Security. You can apply for benefits through the SSA and start receiving money as early as 62 years old. To receive your maximum benefit, you’ll need to wait until your full retirement age or later.

The amount you receive through Social Security depends on your age of retirement and your income while working. In general, the more you contribute to Social Security, the more you’ll get back in retirement.


A pension plan is an alternative type of employer-sponsored retirement plan that offers guaranteed money during retirement. They are common with government jobs, but there are a few private and publicly held companies that offer pensions as well.

How do pensions work? Typically, the employer contributes to your pension while you’re still working. After you retire, you get monthly draws from those contributions. The amount you receive varies based on your plan, but pensions typically replace about 50% of the income that you made while working.


Annuities are another type of investment that you make with an insurance company. Here’s the abbreviated explanation:

You make regular payments to an insurance company while you’re still working. In return, the insurance company sends you a check regularly during your retirement. This may sound like a great option, but your money could be better spent investing in the stock market. The critical difference is that annuities are guaranteed, while investments are come with a certain level of risk.

Selling Assets

Another popular way for retirees to make additional income is to sell some of their valuable assets. For many people, their home is the most valuable asset and that is why some retirees choose to sell their home and downsize to something more affordable.

Another alternative if you still have a mortgage is a cash-out refinance. This is a process where you refinance your home and get money in your pocket.

You can even sell things like your life insurance policy, but we’ll wait to cover that another day.


So there you have it, everything you need to know to start saving for retirement. You should now have a basic idea of how much you need to save for retirement, how to save for retirement and additional income opportunities for retirement.

The main point we want to make here is: Even if you don’t think you can save for retirement, you can’t afford NOT to. The sooner you start, the better.

Even if you’re only putting away 5% of your paycheck, you’re still investing in your future. And if you’re struggling to get by and you’re living paycheck to paycheck, I’m a big fan of the Reddit Roadmap to Financial Independence.

Darin Evangelista

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