Feb 26 2009

Is saving 15% for retirement enough?


As our car loan payoff date is approaching (kind of), I’m crunching numbers on our next steps: Saving for retirement, saving for Jonathan’s education, and saving for a down payment on a house. I’ll discuss these three savings goals in separate posts.

The often-tossed around figure for retirement savings is 15 percent of your gross income. Since it is only meant as a rule of thumb, it’s important to actually crunch numbers to see if that figure is enough for you to reach your goals.

If you haven’t started saving for retirement until your mid-30s or earn a low salary, then 15 percent might not be enough.

I played around with this calculator and this one, and it looks like 15 percent might be spot-on for us.

My assumptions:

  • We’ll wait until age 59 (and a half!) before we make any retirement account withdraws, since doing so before that would be slapped with penalties.
  • We’d live to be 100. It’s certainly possible. Today is my great-grandmother’s 98th birthday, and Shane’s grandfather will turn 90 next month.
  • An 8 percent rate of return during the working years, and a 6 percent return during retirement.
  • We’re not counting on any money from social security.
  • In retirement, we’ll have no mortgage.

Given these many assumptions, it does look like saving 15 percent of our current income is appropriate.

Right now, thinking about saving that much is a bit daunting. But we have to do it. You see, even if Shane never gets another raise, that 15 percent contribution will still be enough. With inflation and (hopefully) pay raises, in a few years, that same $xxx contribution won’t feel like much.

A raise or a company match would just be gravy. How cool is that? I love compound interest.

So while investing $xxx each month right now seems like a lot, pretty soon, it’ll feel automatic. We won’t miss the money. And, I’m pretty sure that Shane’s salary will go up over time, and maybe once the economy gets better, a company match might make a comeback and sweeten the deal.

Posted under Uncategorized | 12 Comments »

12 Responses to “Is saving 15% for retirement enough?”

  1. Not only is it a good idea … but right now you’ll be getting lots of stock on sale. Prices are really low right now and I think that most really discounted more than they should be. So in another 30 years buying now will be a huge pay off.

    I’m not diving in or increasing my amount, but I am not canceling my contributions either. What I buy now is so much cheaper than it was even just a year ago. It’s bad for those retiring now or soon but a great deal for those of us with a long way to go. :)

    megscole64’s last blog post..Why Buy Handmade?

  2. It’s a great point that we often do not feel the pain once we have made the decision to set aside the money we need to save. In my situation, we need to concentrate on hacking away at the credit debt before we can increase the current amount going to retirement.

    Steve’s last blog post..Break Up With Lack! Making Money During a Depression

  3. You make a good point in using two different rates of return (8 and 6 percent) in your calculations.

    I would also recommend factoring in historical inflation rates into your calculations by subtracting an assumed rate from 8 and 6 percent, respectively. I typically assume 3% annual inflation… Doing this would modify your assumed rates of return to 5 and 3 percent.

    The other big determining factor for percent to save is annual salary. People with small annual salaries will have to save a larger percentage.

  4. I started saving for retirement when I was 11 years old. I married at 20 and we saved half for years. He got it all now I am starting over at zero at age 50. Warning to all stay at home wifes and Mom’s. Save in your name only.

  5. It is also wise to re-evaluate the projections at least every couple years (and every year as you get within say 10 years of planned retirement). Another thing to consider is a partial retirement where you work part time at the beginning of retirement, I think that is going to become increasingly common.

    A few years ago 10% looked like a decent goal for retirement saving (not without risk, but at least a decent start for say your 20’s and 30’s). The real estate and stock market recently have made the assumptions behind 10% seem optimistic.

    Curious Cat Investing Blog’s last blog post..Low Mortgage Rates But High Eligibility Requirements

  6. Also, try 4 percent…sometimes that’s all you really get.

    Sandy’s last blog post..Photo Hunt-Thankful

  7. It’s interesting how spouses can have different assumptions about retirement. I would love to retire early, while my wife has a dream of becoming a college professor after she retires from her career. I say, go for it but I still want to retire early :)

    Scott @ The Passive Dad’s last blog post..How We Shed $200 From Our Grocery Budget. Next Month FoodMaxx For More Savings

  8. 15% is a great goal for savings, especially if you are starting early. If you’re a little later though, you may need to ratchet it up to 20% or so.

    I ran a few scenarios assuming a 7% return on investment and that you can live off 4% of your savings. Check out the graph at:


    What it tells you is this…you better be saving North of 15% if you want to be Financially Independent early!

    Happy savings and good luck!

    Jorge’s last blog post..Independent Minded

  9. 15% is quite fine from my calculation too, especially if you are younger.

    We had to focus on clearing our 70k in debt and buying a house before we seriously start putting too much in retirement. I have put 8% away faithfully with a 50% company match since I graduated college that has given us a great start.

    The other question is, do you plan on retiring? At least I hope I am not forced too. I know I will be doing ‘work’ that I love and 60 seems like a silly time to stop, you are just getting seasoned.

    The Happy Rock’s last blog post..$500 Credit Card Cashback In A Year

  10. It’s so hard to predict where we’ll be 5 years from now, let alone 40 years and beyond. At this point, my husband would probably like to retire in a traditional sense, but who knows?

    We want to be in the position where we won’t have to worry about money. Continuing to work for the fun of it, or changing industries at that time, might be how it ends up.

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Hey! I'm Kacie, wife and mother of 3. I write about my family's finance: how we save money, improve our spending, and plan for the future.

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