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Saving for Retirement

3 Questions That Reveal Whether You’re Saving Enough for Retirement

Is $1 million enough? $2 million? Your retirement number depends on your salary and cost of living.


What’s your retirement number? Hard to say, isn’t it? Answering that question is akin to planning for a vacation you'll be taking some 20, 30 or even 40 years from now. You don't know where it will be, how much it will cost or how long it will last, but you're tasked with saving a chunk of every paycheck toward that trip until the day you embark on it.

See Also: Take the Are You Saving Enough for Retirement? Quiz

See if you know the answer to these three questions to determine whether you’re saving enough for your retirement:

1. What percentage of your gross salary should you be saving to finance a comfortable retirement?


Answer: 15%. But that can include employer contributions to your 401(k), so don’t worry -- you don’t have to save it all yourself. The old rule of thumb was to save 10% of every dollar you earned for a rainy day. But with traditional pensions disappearing and workers becoming more responsible for financing their own retirement (including ever-increasing health care costs), many financial experts recommend saving more these days.

2. What percentage of your preretirement income should you aim to generate from your nest egg in retirement?

Answer: Retirement planners generally recommend that you have enough savings at the end of your working life to replace 70% to 85% of preretirement income. The targets take into account that you'll no longer be saving for retirement, getting dinged for payroll taxes or covering work-related expenses, such as commuting costs.

3. How big should your nest egg ultimately be in comparison to your final salary?


Answer: Assuming you intend to retire at age 65, aim to accumulate savings equal to 8 to 10 times your annual salary. Together with Social Security benefits, that should be enough to replace about 85% of your preretirement income. If you have other sources of income -- such as a traditional pension or a part-time job -- or if you plan to significantly reduce your spending in retirement, you can get by with saving less.

For more questions and helpful answers about building the right nest egg for you, take Kiplinger’s Are You Saving Enough for Retirement? quiz.