How much should you actually save for retirement?
There’s no single right answer, but a few reasonable rules of thumb help you work out whether you’re roughly on track.
“How much should I save?” almost always gets answered with an average or a generalisation, because that is genuinely all a general answer can offer. Your own plan needs your own numbers, worked through with an adviser who knows your circumstances.
A starting rule of thumb: 75% of your final salary
It’s widely held that a retirement income around 75% of your final salary allows a comfortable retirement, since some costs fall away (you stop saving for retirement itself) while others tend to rise. Worth weighing against your own circumstances:
- 1Housing — will your bond be paid off, or are you planning to buy or rent something bigger before you retire?
- 2Transport — will your car be paid off, or do you expect a more expensive one later?
- 3Medical costs — these tend to rise as you age, and medical inflation usually runs ahead of general inflation.
- 4Education — will you still be funding school or university fees for children or grandchildren?
How much to put away, and when to start
Assuming an income of 75% of final salary is the target, a reasonable starting point is saving around 17% of salary from age 25 — rising steeply the later you start: about 22% from 30, 42% from 40, and 59% from 45. These figures assume retiring at 65 on a return of inflation plus 5%, and are averages, not a guarantee for any one person.
This article is general information and not advice. Silke Financial Services is an Authorised Financial Services Provider, FSP No. 12462.