In general, it’s a good idea to set aside 10% to 15% of your income for retirement. (Thanks to compounding, the more time you have toward that goal, the less you may need to save to get there. Also, it’s okay to start small and gradually work your way up by, say, boosting your contribution rate by one or two percentage points a year.)

Even so, most people haven't saved nearly enough. According to the Federal Reserve, only 31% of non-retirees think their retirement savings are on track. Fortunately, a good, sustainable plan can get you working toward a comfortable retirement and put you in a better place. Here’s how to get there.

Use your income to calculate your goal

To estimate the nest egg you want for retirement, first determine the yearly income you'll need for your retirement. Experts generally say that you should expect to spend 70% to 90% of your preretirement income. So, if you expect to make about $100,000 a year just before you retire, expect to spend around $70,000 to $90,000 annually afterward. Having a range helps you adjust for any changes to the cost of living, healthcare, and long-term care.

Once you have estimated your spending, a tool like Prudential’s retirement calculator can help you see how much you might need to save—and what to do if you’re off course.

The ‘4% rule’

Another way to guesstimate how much you might need for retirement is to use the “4% rule.” This income planning guideline assumes you can safely withdraw the equivalent of 4% of your savings each year over 30 years in retirement. The math is simple: You divide your annual retirement spending by 4%. So, if you expect to spend $90,000 a year over three decades in retirement, your target savings goal would be $2,250,000 ($90,000/0.04).

It can be motivating to see what your estimated “number” might be, but the 4% rule carries important caveats. For instance, it assumes you’ll receive all your estimated Social Security benefits in retirement. However, the Social Security Administration has said that its “trust fund” will run out by 2035; unless Congress acts, that could cut benefits by 25%.

Some experts, including Bill Bengen—the financial advisor who created the 4% rule—now say it’s outdated and too rigid. Given recent inflation, he’s suggested that a 4.7% withdrawal rate can make sense—but only in the first year of retirement. After that, flexibility (based on investment performance, inflation, and how you expect to

spend your money) is more important. That’s because retirement expenses vary from year to year. Retirees often spend more on their lifestyles early on, while healthcare costs can be a bigger burden later. So, it can be helpful to see 4% (or 4.7%) as less of a “rule” than a guideline.
 

Retirement savings goals by age

In retirement, the lifestyle you’ll want may change. Further, many of the financial obligations, income-generating potential, and expenses you’ll have may be unknown. All those factors can make your goal seem like a moving target. And here's the thing: It kind of is!

That's why you should set your goal for tomorrow based on what you know today. That starts with your age. Everyone's situation is unique, of course, but age-based benchmarks tied to your salary can give you a focus you can adapt and improve as the years go by.

When to start saving for retirement

The earlier you begin investing for retirement, the better. Ideally, that’s whenever you first start earning disposable income (more money than you need to live on). And thanks to compound interest- the earnings on your earnings—the sooner you start, the less you may need to save to reach your goals.

But there’s a second-best time to start saving for retirement: right now. Even if you’re older, compounding works in your favor. And once you’re 50 or older, “catch-up” contributions—higher annual limits than younger savers face—to a 401(k), 403(b), 457, or IRA can help you come from behind.

Are you where you want to be?

If you’ve been saving 15% of your income annually starting at age 22, good for you! By the time you turn 30, and assuming your salary stays fairly steady, you’d have the equivalent of one year's pay saved for retirement. So, if you earn $55,000, that’s $55,000 stowed away, give or take. The older you are, the higher those goalposts get:

• By age 25, aim to have saved 0.5 to 1 time your pay in retirement savings
• By age 30, aim to have saved 1 to 1.5 times your pay
• By age 35, aim to have saved 1.5 to 2 times your pay
• By age 45, aim to have saved 3 to 4 times your pay
• By age 55, aim to have saved 5 to 8 times your pay
• By age 65, aim to have saved 8.5 to 14 times your pay

Just keep in mind, these targets are based on Americans’ average retirement age. Your savings goal will vary depending on when you plan to retire.

How to save more for retirement

Contributing to a 401(k), 403(b), or 457 workplace account is a tax-friendly way to boost your savings. Employers make it easy with automatic payroll deduction—if you don’t see the money, you’re less likely to miss it. Many will also match part of your contributions. That’s like getting free money for your future—if you take advantage of it.

But if you don’t have a plan at work (and even if you do), consider an individual retirement account (IRA). You’ll get similar tax breaks and more control over your savings.

There are caps to how much you can save each year through those accounts. For 2023, you may contribute up to $22,500 to workplace accounts—plus another $7,500 in “catch-up” contributions if you’re age 50+ or will be by year-end. For IRAs, you can sock away up to $6,500 ($7,000 if you’re 50 or older).

Besides saving more, you might consider pushing back retirement if you can. For one thing, working longer gives you more time to save and fewer retirement years to save for. One example: Social Security will also provide you a bigger monthly check—for life—if you delay taking benefits until age 70 versus 67.

If all that sounds too ambitious, or you feel like you’ve already fallen behind, it’s okay—and common. Work with a financial professional to get your goals on track. They can help you assess your savings options, establish a plan, and align your retirement goals with other financial priorities, like paying down your student debt or funding your kids’ educations so they won’t have loans of their own.

Factor in outside forces

Of course, some things you can’t control can play a big role in your savings milestones.

One example is inflation, or the rising cost of living (and declining value of money) over time. Inflation affects your “purchasing power”—a dollar saved today doesn’t equal a dollar tomorrow. An inflation calculator can help you understand how changing prices could affect your savings and spending.

Then there are taxes—that is, how much you might owe on retirement account contributions, withdrawals, and earnings. The good news is, some of this can be within your control. For example, you can split your savings into different types of accounts:

When you fund a "traditional" IRA, 401(k), 403(b), or 457, you contribute pretax (or tax-deductible) dollars. This gives you a tax break upfront, but you'll owe tax at your regular income rate when you withdraw your money.

By contrast, you fund Roth IRAs and, if available, Roth workplace accounts with after-tax dollars. The benefit: Withdrawals are tax-free if you hold the account at least five years and meet other criteria. Other plans, such as pensions or annuities, may have different tax implications, so find out and look at your overall picture before you make choices.

On a positive note, medical advances and health awareness may increase how long we live. Even so, while people are living longer than they did decades ago, they aren’t necessarily planning for it. One reason is that many people underestimate their life expectancy. That can lead to under saving, and increase your risk of running out of

money, especially if your retirement lasts more than 30 years. And a funny thing about life expectancy is that it increases as you age. According to Social Security's life expectancy calculator, a 50-year-old man can expect to live until 82. But once he reaches 62, he can figure in another four years, to age 86.

A financial planner or tax advisor can help determine how long your retirement savings will likely last. They can also help you understand how inflation and taxes could affect your finances.

Consider other income

Will you have income sources beyond your savings to help cover retirement expenses? Chances are you'll get Social Security. And depending on your situation, you may have pensions, inheritances, rental properties, or even assets like home equity if you downsize to a cheaper place. Also, many retirees take on part-time work for added income—and social benefits.

Estimate your costs

It's not just about keeping yourself fed, clothed, and housed after you retire. You also should consider debt, particularly if you’ll have a mortgage you haven't paid off. Healthcare and long-term care can also be very expensive.

Consider your lifestyle and if you’ll want (or need) it to change in retirement. Maybe you’ll want to spend more on dining and travel. Or maybe you’ll be satisfied to lead a simple and frugal life (especially if it allows you to retire early).

Necessity might dictate that you downsize your lifestyle and cut costs. Not to worry! A good first step is to calculate your expected costs in retirement. From there, you can target spending cuts on goods and services you don’t need to keep, or find cheaper alternatives and negotiate “senior” rates.

Determine your risk tolerance

It’s a good idea to think about your risk tolerance. This means your willingness (be honest!) and ability to handle short-term investment volatility. One key clue lies in your time horizon, or how long until you’ll need your money.

Basically, the more time you’ll have to recover from potential losses, the more you can afford to take risks in pursuit of bigger gains. That means focusing on stocks, which have outperformed other types of investments over the long term.

Then too, if stability—especially when you’re near or in retirement—can give you more peace of mind, it may help to explore annuities. These insurance products can protect and sometimes grow your income.