Are You Saving Enough for Retirement? The Easy Way to Tell

Whether retirement is decades away or just around the corner, you probably wonder if you're putting enough money away to survive during your golden years. While the answer to that question varies based on whether you picture a simple cottage or a life of travel, these simple guidelines can help you see if you need to step up your savings game.

Understanding the Math

To do this easy calculation, you'll need to have an idea of how much you'll spend annually in
retirement. For a modest lifestyle in retirement, plan to have an income of about 70% of what you spend now. Big spenders should use a guideline of 80%.

Let's say you've budgeted to live on $40,000 per year. Multiply that number by 25 to get $1
million. Once your portfolio reaches that magic number, you can safely retire and withdraw 4% a year for expenses. U.S. News and World Report notes that this estimate is most accurate if plan to retire within 15 years.

Experts note that you can adjust this 4% withdrawal rate based on your needs. For example,
someone who retires early should consider withdrawing just 3% for living expenses annually,
while a person who works into his or her 70s can go for a higher withdrawal rate.

Based on these guidelines, plan to save 10% to 20% of your household pre-tax income for
retirement. For example, if you and your partner earn $100,000 per year together, you can live a fairly comfortable lifestyle if you set aside a total of $15,000 annually. Put aside more if your plans include a tour of Europe or frequent dining and day trips.

To summarize this strategy for saving:
• Know how much you need to live each year.
• Save 10% to 20% of your gross income.
• Start with a 4% annual withdrawal rate, adjusting as needed.

Bolstering Your Retirement Nest Egg

Knowing how much you need to save for retirement is an important start. However, you might also struggle with finding the wiggle room in a tight budget to invest in your future.

First, make sure you make the minimum required contribution to qualify for your employer's
401(k) match if available. If you don't, you're leaving real money on the table. Remember, the
15% savings recommendation includes your matching program. That means if you contribute just 10% and your employer matches with 5%, you've reached your goal.

Maybe you did the math but can't afford to put aside 15%, or even 10%, for retirement. Don't let that discourage you from saving anything at all. Start with the smallest possible percentage, and increase each year until you eventually get on target. Remember, saving for retirement is about long-term growth, not short-term luck.

Don't miss out on tax credits for retirement savings. If you and your spouse earned less than
$65,000 in adjusted gross income in 2020, you can claim up to 50% of your contributions to a
qualifying retirement account. Single filers qualify if they earn less than $32,500. Then, turn
around and sock that extra tax return away in your 401(k).

Most people become eligible for full Social Security retirement benefits at age 67. Delaying
retirement until then ensures that you'll receive your maximum monthly Social Security payment, allowing you to stretch your savings even further.

Remember that if you are 50 or older, you can make catch-up contributions to your retirement accounts. The IRS increases the tax-free contribution limit each year, allowing older adults to save an additional $6,500 in 2020.

Saving hundreds of thousands of dollars over the next several decades might seem like an
insurmountable task. But with a bit of basic math and these smart savings tips, you'll be on your way to a healthy retirement account before you know it.