What Percentage of Income Should Go to Retirement?

Posted by Colton Hoisager on Apr 29, 2021


This can be a tricky question, and is one that anyone who plans to retire someday should ask, “what percentage of income should go to retirement?” 

The answer can be complex because the amount of retirement income needed is different for everyone and depends on your age, employment status, retirement time frame, current savings, access to retirement plans, and more. 

Before you calculate the percentage of your income to save for retirement you need to know: 

  1. How much do you need to save for retirement
  2. How much do you currently have saved? 
  3. What is the gap? How much do you still need to save before you retire? 

You have probably heard many theories, a popular one is being told to save 15-20% of your income, starting in your 20s. However, what if you didn’t do that? It doesn’t mean you can’t save enough for a comfortable retirement income. 

Although most experts will agree that 15-20% of your take-home income is a good start, there are other factors to consider, each depending on your own circumstances and retirement plans. 

For example, some people start slow, like investing 5% off their income to start, and then increase their savings by a specific percentage each year. This tactic might work best for a younger investor, but can also be applied if you are closer to retirement, but the percentage may need to be higher. Gradually increasing the percentage you save for retirement income is a less dramatic effect on your paycheck, and can be easier for some people. 

Employee Matching

If your employer offers a 401(k) matching program where they match a portion of your contribution to your retirement account, Most experts suggest contributing at least that percentage towards your retirement income. For example, if your employer matches your contribution up to 5%, you should be allocating a minimum of 5% to your 401(k). 

IRS Limits on Retirement Contributions

The percentage of your income that should go to retirement also depends on the limits set each year by the IRS. For example, the 2020 contribution limit for 401(k) plans was $19,500. The limit was higher, $26,000 in 2020, for individuals over the age of 50. The IRS adjusts the limit each year. 

Overall, there is really no magic number anyone can give you without evaluating your situation. The most important thing is that you do have a plan, and that you start saving for retirement as soon as possible. 

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.

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