Recent research from Schwab Retirement Plan Services illustrates two things: First, 401(k) participants believe they need $1.7 million, on average, to retire. And second, many are not on track to get there.

Why is that the case? There may be multiple causes, but not knowing how much to save, when to save it, and how to make those savings grow with the most efficiency can go a long way toward creating retirement account shortfalls.

Key Takeaways

  • See yourself as an investor, not a saver, to maximize returns and account balances.
  • Get professional advice to help you avoid a “set it and forget it” attitude toward saving.
  • Knowing how much you need to save “by age” will help you stay on track and reach your goals.
  • Experts say you will need 80% of your pre-retirement income after you retire.
  • Divide your desired annual retirement income by 4% to find out how much to save.

Saving vs. Investing

Schwab research shows that most people (64%) see themselves as savers, not investors. As a result, most 401(k) participants (54%) tend to put additional retirement funds in a savings account instead of another investment account such as an IRA, brokerage account, or health savings account (despite its name, an HSA has numerous important advantages over ordinary savings accounts).

The trouble with this strategy is that savings accounts typically pay much lower returns than investment accounts. Especially in the early and middle years of your career, you want to take advantage of having lots of time before retirement to take some of the risks that allow you to earn more with your investments.

Be Smart and Flexible

When it comes to their 401(k) account, many people take a “set it and forget it” approach to saving and investing, according to the Schwab study. A third of study participants who auto-enrolled in their 401(k) plan have never increased their contribution level, and 44% have never made a change to their investment choices.

You need to pay attention to and actively manage a 401(k) to really make it grow—and that also applies to other investment accounts, such as IRAs, brokerage accounts, and HSAs. To accomplish this, you likely will benefit from professional help. In fact, 95% of Schwab survey participants said they would be “somewhat” or “very” confident about making investment decisions with help from a pro versus 80% if they had to do it on their own.

$1.7 million

The amount, on average, respondents in a recent Schwab survey said they need to retire.

Retirement Income: The 80% Rule

Most experts say your retirement income should be about 80% of your final pre-retirement salary. That means if you are making $100,000 annually at retirement, you will need an income of at least $80,000 per year to have a comfortable lifestyle after leaving the workforce. This amount can be adjusted up or down depending on other sources of income, such as Social Security, pensions, and part-time employment, as well as factors like your health and your desired lifestyle.

Total Savings: The 4% Rule

To determine the amount you will need to have saved to generate the retirement income you want, one easy-to-use formula calls for dividing your desired annual retirement income by 4%. To generate the $80,000 cited above, for example, you would need a nest egg at retirement of about $2 million. This assumes a 5% return on investments (after taxes and inflation), no additional retirement income (i.e., Social Security) and a lifestyle similar to the one you would be living at the time you retire.

Savings by Age

Knowing how much you should save toward retirement at each stage of your life will help you answer that all-important question: “Have I put aside enough?” Here are two useful formulas that can help you set age-based savings goals on the road to retirement.


To reach your goals, save 15% of your salary, beginning at age 25, with 50% invested in stocks.

Multiples of Your Salary

To figure out how much you should have accumulated at various stages of your life, thinking of a percentage or multiple of your salary at that time can be a very useful tool. Fidelity suggests you should have 50% of your annual salary in accumulated savings by age 30. This requires saving 15% of your gross salary beginning at age 25 and investing at least 50% in stocks.

Interestingly, half of the participants in the Schwab study said they were contributing 10% or less of their income into their 401(k)s. Unless some combination of an employer match, additional savings, and debt repayment makes up the difference, those study respondents may have trouble hitting that 50% mark by age 30. Additional savings benchmarks suggested by Fidelity are as follows:

  • Age 40—two times annual salary
  • Age 50—four times annual salary
  • Age 60—six times annual salary
  • Age 67—eight times annual salary

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Another Multiple Formula

Another formula holds that you should save 25% of your gross salary each year, starting in your 20s. The 25% savings figure may sound daunting, but keep in mind it includes not only 401(k) withholdings, but also the other types of savings mentioned above. Following this formula should allow you to accumulate your full annual salary by age 30. Continuing at the same average savings rate should yield the following:

  • Age 35—two times annual salary
  • Age 40—three times annual salary
  • Age 45—four times annual salary
  • Age 50—five times annual salary
  • Age 55—six times annual salary
  • Age 60—seven times annual salary
  • Age 65—eight times annual salary

How Much Can You Save?

Based on figures provided by the Bureau of Labor Statistics (BLS) in its 2015 “Consumer Expenditures Survey,” the percentage of income left over (and available for savings) for workers between the ages of 25 and 74 averages 19.8% on a pretax basis. This figure is well above the 15% savings formula above and potentially within the 25% figure, depending on how much comes from things like employer matching and debt repayment. The following is the average pretax percent of income left over after expenditures by age group:

  • 25 to 34: 19%
  • 35 to 44: 23%
  • 45 to 54: 27%
  • 55 to 64: 22%
  • 65 to 74: 8%

The Bottom Line

Given the savings potential of nearly 20% of gross income and an actual savings rate of less than 5% of disposable income, most Americans likely have room to increase their savings at most stages of their lives. If you’re like most Schwab respondents, your 401(k) might be a good place to start. Upping your savings rate may even reduce financial stress, which mostly comes from worrying about saving enough for retirement, Schwab reports.

Whether or not you try to follow the 15% or the 25% savings guideline, chances are your actual ability to save will be affected by life events like those reported by Schwab participants, starting with home repairs (37%), credit card debt (31%), and monthly expenses (30%). Sometimes you will be able to save more, and sometimes less. What’s important is to get as close to your savings goal as possible and check your progress at each benchmark to make sure you are staying on track.

Since the importance of saving for retirement is so great, we have made lists of the best brokers for Roth IRAs and IRAs so you can find the best places to create these retirement accounts.