How Much Should You Have in Retirement Savings?With pension plans becoming harder to find, Americans are having to bear more of the burden when planning for retirement. Now, if you want to live well in your twilight years, it’s up to you to put away money for retirement savings. The question is, how much money should you be saving? Figuring out your income when you’re retired isn’t as simple as it is when you’re working, and if you don’t plan ahead, you could spend your retirement struggling to get by. If you’re concerned about your retirement savings, keep reading to see how much cash you should be stocking away for the future, as well as what kind of help you can expect from Social Security.

Money in your retirement savings accounts

Because there are a lot of differing factors when it comes to each individual’s retirement needs, such as income, life expectancy, cost of living and desired quality of life during retirement, the easiest way to talk about retirement savings is with percentages, not hard numbers. Common advice is to save about 15% of your income for retirement, as 15% will let you retire with an income close to the one you had when you were working after a 40-year career. If you can afford to contribute more, that’s even better, as more money in your retirement account will help you get through downturns in the market, potential decreases in Social Security benefits and life emergencies. On the other hand, if you can’t afford to put away 15% of your income, that’s okay too. Save 10%, 5% or whatever you can spare, because any money you save for retirement now will grow and help you in the future. It will also put you ahead of most Americans, as in 2013, half of all American families had no retirement savings at all. Retirement accounts such as IRAs sometimes require a high minimum deposit to get started, but if you don’t have enough money to meet the minimum while starting out, you can put your money into a high-yield savings account so it will still earn interest until you accumulate enough.

It’s important to note that the 15% advice is often given to people who start saving when they’re in their 20s. If you’re older than that, you may have to put in more to meet your retirement goals. Either way, you ideally want enough money in your retirement savings so that you can get by withdrawing only 3% to 4% of it per year. For example, if you want $23,000 per year of income from your retirement savings, and you withdraw 4% per year, you’ll need $460,000 in your retirement accounts to manage that. That may seem like way too much money to save, but having this amount will let your fund continue to generate large amounts of interest, partially replacing the income you take out and making it so you shouldn’t have to worry about running out of money throughout your retirement. It also makes your fund large enough to help take care of medical expenses, which average about $280,000 out-of-pocket for a couple in retirement, excluding costs of long-term care. Again, remember that this is an ideal scenario, and if your circumstances make this unfeasible for you, it’s okay to set lower goals. Everything you contribute counts.

Money from Social Security

For many Americans, Social Security benefits are a vital part of retirement, providing 63 million Americans about $1 trillion this year alone. It’s designed to replace a percentage of each retiree’s working income according to need, so, for instance, a low-income earner may receive 70% of their working income, while a high-income earner could receive only 30% of their working income. The Social Security Administration determines payments based on how much you earned during your 35 most prosperous years. If you haven’t worked for a total of 35 years, your annual wages are considered $0 for the number of years by which you miss the 35 year target, so if you only worked for 30 years making $50,000 annually, your income record with the Social Security Administration will be 30 years of $50,000 and 5 years of $0. The age at which you begin taking your benefits also affects the amount you get each month. You can take benefits as early as age 62, but your income will be more than 25% lower than normal. Full retirement age is about age 67 (66 if you were born between 1943 and 1954), but you can also delay your retirement to receive additional benefits. Each year you delay until age 70, your benefits will increase by 8%.

Even though a lot of people use Social Security benefits as their primary retirement income, you shouldn’t rely solely on Social Security to get you through your senior years. In 2017, the average retiree only collected about $16,500 total from Social Security benefits, and benefits may be reduced in the future due to increased life expectancy, recent tax cuts and more people of the Baby Boomer generation getting to retirement age. Additionally, it’s possible you may not qualify for Social Security retirement benefits. The Social Security Administration requires each person or their spouse to earn 40 “credits” by working for a total of 10 years, which helps put money into the Social Security system via taxes. While the vast majority of American retirees meet this requirement, you may not if you haven’t been working, or you’ve been getting paid in cash your entire life and avoiding taxes. You can get a personalized retirement benefit estimate on the Social Security Administration website.

For many people, saving for retirement seems like an impossible feat, but these days having even a small nest egg is necessary to ensure your security later in life. To learn more about how you can make your money go farther, whether you’re retired or still working, follow our savings blog.