The rate
Fifteen percent is the figure most planners land on for someone who starts in the mid-twenties and retires in the late sixties. It assumes that Social Security replaces part of your income and that markets behave roughly as they have in the past, and neither is guaranteed. The employer match counts toward it, so if you put in ten percent and your employer adds four, you are at fourteen. Starting later raises the bill. Someone beginning from zero at thirty-five needs something nearer twenty to twenty-five percent to arrive at the same place, and at forty-five the required rate becomes uncomfortable, which is the whole argument for starting now with whatever you can.
The checkpoints
A widely used set of benchmarks states the goal as multiples of your current salary held in retirement accounts.
- By thirty, the target is one year's salary.
- By forty, it is three times your salary.
- By fifty, it is six times.
- By sixty, it is eight times.
- By sixty-seven, it is ten times.
These are road signs and not grades. They assume retirement around sixty-seven and spending somewhat below your working income. A person earning $60,000 at thirty would look for roughly $60,000 across all accounts, and the same person earning $80,000 at forty would look for about $240,000.
If you are behind
Most people are, particularly anyone who spent their twenties in school or paying off loans. The repair sequence is dull and effective. First, capture the whole employer match, since it is an immediate return that nothing else offers. Second, set your contribution to rise by one percentage point every year, timed to your raise so that take-home pay never falls, and many plans will automate this. Third, send half of every raise and windfall to retirement until you reach fifteen percent. From fifty onward, the IRS allows catch-up contributions beyond the normal annual limit. The limits change most years, and the current figures are published on the IRS site.
Where it goes
The usual order is the workplace plan up to the match, then a Roth or traditional IRA, then back to the workplace plan. A health savings account, if your health plan qualifies you for one, serves as a useful extra retirement account. Self-employed people have their own versions, including the SEP IRA and the solo 401(k).
Tip Judge yourself by your savings rate, which you control, and not by the balance, which the market controls. Check the balance once or twice a year at most.
