I'm 29, and just started a new job with an excellent mandatory retirement plan. I contribute 5.5 percent of my salary and my employer deposits an amount equal to 8.5 percent of my salary. I have a Roth IRA I've funded previously, but I've never really thought about how much I need--I've always just contributed the max when I can or let it ride otherwise.

Now, I'm at a point where I might buy a house a few years from now, and I need to know whether I should be saving up short term stuff for a downpayment or if I need to further fund long term investments for my retirement. How do I go about planning how much I need to have saved up by retirement?

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    Save as much as you can !! You should be ready for anything except nuclear holocaust.
    – DumbCoder
    Commented Jan 9, 2011 at 13:54

3 Answers 3


I wrote a spreadsheet (<< it may not be obvious - this is a link to pull down the spreadsheet) a while back that might help you. You can start by putting your current salary next to your age, adjust the percent of income saved (14% for you) and put in the current total.

The sheet basically shows that if one saves 15% from day one of working and averages an 8% return, they are on track to save over 20X their final income, and at the 4% withdrawal rate, will replace 80% of their income. (Remember, if they save 15% and at retirement the 7.65% FICA /medicare goes away, so it's 100% of what they had anyway.)

For what it's worth, a 10% average return drops what you need to save down to 9%. I say to a young person - try to start at 15%. Better that when you're 40, you realize you're well ahead of schedule and can relax a bit, than to assume that 8-9% is enough to save and find you need a large increase to catch up.

To answer specifically here - there are those who concluded that 4% is a safe withdrawal rate, so by targeting 20X your final income as retirement savings, you'll be able to retire well.

Retirement spending needs are not the same for everyone. When I cite an 80% replacement rate, it's a guess, a rule of thumb that many point out is flawed. The 'real' number is your true spending need, which of course can be far higher or lower. The younger investor is going to have a far tougher time guessing this number than someone a decade away from retiring. The 80% is just a target to get started, it should shift to the real number in your 40s or 50s as that number becomes clear.

Next, I see my original answer didn't address Social Security benefits. The benefit isn't linear, a lower wage earner can see a benefit of as much as 50% of what they earned each year while a very high earner would see far less as the benefit has a maximum. A $90k earner will see 30% or less. The social security site does a great job of giving you your projected benefit, and you can adjust target savings accordingly.

2016 update - the prior 20 years returned 8.18% CAGR. Considering there were 2 crashes one of which was called a mini-depression, 8.18% is pretty remarkable. For what it's worth, my adult investing life started in 1984, and I've seen a CAGR of 10.90%. For forecasting purposes, I think 8% long term is a conservative number.

To answer member "doobop" comment - the 10 years from 2006-2015 had a CAGR of 7.29%. Time has a way of averaging that lost decade, the 00's, to a more reasonable number.

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    Have people been averaging an 8% return over the past 10 years?
    – doobop
    Commented Jan 9, 2011 at 14:10
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    The return for the 80's and 90's was nearly 16% compounded over 20 years. For the '00s -1%/yr. This is for the S&P. If you look only at the short term, you'd assume either the 16 or -1 depending when you start. I'd be curious what number you'd wish to plug into to such a spreadsheet. I thought I was clear to err on the side of caution, but too low an assumption, say 5%, and you'd need to save at a 30% clip. Given that 1920-2009 averaged just over 10%, I see no reason we'd slow to less than 8 in the next half century. Commented Jan 9, 2011 at 16:55
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    This is why you think long term- assuming a given return over 5 or 10 years is rather risky, but assuming an average return over a 30 year period is much more reliable. Commented Jan 9, 2011 at 18:46
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    If you look at moneychimp.com/features/market_cagr.htm and enter Jan '94 - Dec '13, you see a CAGR of 9.22%. The trick is that one should either asset allocate very carefully as they invest, or if they were heavy in stock, enter retirement with a less aggressive allocation. The '00 decade didn't cause me to lose any sleep as my wife and I were still working. Now, semiretired, our allocation can withstand a lost decade. Commented Jun 24, 2014 at 13:56

One common rule of thumb: you can probably get 4% or better returns on your investments ('"typical market rate of return is 8%, derate to allow for inflation and off years). Figure out what kind of income you will want in retirement and divide by 0.04 to get the savings you need to accumulate to support that.

This doesn't allow for the fact that your needs are also going to increase with inflation; you can make a guess at that and use an inflated needs estimate.

Not sophisticated, not precise, but it's a quick and dirty ballpark estimate. And sometimes it's surprisingly close to what a proper model would say.


One opinion related to savings is to save 30% of your take home salary every month, split the amount into two parts depending on your age (29) one part would be 30% of 30% and another 70% of 30%. Take the 70% and buy blue chip stock and take the 30% and buy govt. bonds. Each 10 years adjust the percentages at 40, 40% on bonds and 60% on stock. Only cash out on the day you retire, otherwise ignore all market/economic movements. With this and the statutory savings (employment retirement) you should be ok.

  • It's rarely a good idea to cash out on the day you retire. Also, 30% of your take-home salary, while a great idea, is generally unreasonable. More common is 10 - 20% if you start in your 20s. But your answer is generally good, so I'm +1'ing it. Commented Sep 5, 2014 at 13:24

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