How much do you really need to set aside for retirement?

Senior man putting coins into a piggy bank — Many experts recommend that you plan to live on 80% of your pre-retirement annual income

(Image credit: Halfpoint Images / Getty Images)

The rate of retirement savings is inching upward. "Nearly a third of companies that use automatic 401(k) enrollment now start workers saving at 6% of their salaries or higher," said The Wall Street Journal, citing a report by Vanguard Group, which is "about double the share of organizations that did so a decade ago."

Previously, said the Journal, setting a default contribution rate of 6% was "considered too onerous for younger workers and too paternalistic by those who favor leaving decisions to individuals." But now, companies are seeing this as a nudge in the right direction for employees saving for retirement — and taking advantage of employer matching contributions. These shifts raise the question: How much do you really need to save for retirement?

How can you figure out how much you actually need to retire?

There are a number of ways you can figure out how much you'll actually need to save up to retire. Here are a few guidelines you can use to make the calculation:

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The 4% rule: "One easy-to-use formula is to divide your desired annual retirement income by 4%, which is known as the 4% rule," said Investopedia. So, "for an income of $80,000, you would need a retirement nest egg of about $2 million ($80,000 /0.04), assuming "a 5% return on investments, after taxes and inflation, no additional retirement income, such as Social Security, and a lifestyle similar to the one you would be living at the time you retire." This rule also "assumes that you will live for 30 years in retirement," which you may need to adjust depending on your health or other circumstances.

80% of your pre-retirement income: The 80% rule is based on the recommendation from many experts to plan on "living on 80% of your pre-retirement annual income," said Investopedia. So, for instance, "if you make $100,000 annually at retirement, you need at least $80,000 per year to have a comfortable lifestyle after leaving the workforce." You can then make adjustments as needed based on personal factors like your lifestyle and health, as well as any additional sources of income.

10 times your annual salary by age 67: If 80% sounds too steep, try this rule instead — "the financial-services firm Fidelity suggests that savers can target a much lower income replacement percentage than 80%," and that "to maintain a lifestyle similar to the decade before retirement, a 45% income replacement target is sufficient," said the Journal. With this rule, you'd aim to have saved up a certain multiple of your salary by a specific age, ideally reaching 10 times your annual salary in total retirement savings by age 67.

What's the right amount to set aside each year for retirement?

"When saving for retirement, most financial experts recommend an annual retirement savings goal of 10% to 15% of your pre-tax income," said NerdWallet.

However, as with most things financial, that calculation can shift depending on your personal factors. This includes "your life expectancy," your "current spending and saving levels," and your "lifestyle preferences in retirement," said NerdWallet. Also take into consideration when you plan to retire, as that can shift how aggressively you should be saving.

Note that this rule of thumb assumes that "you begin saving pretty early in life." If you want to "retire comfortably by following the 15% rule, you'd need to get started at age 25 if you wanted to retire by 62, or at age 35 if you wanted to retire by 65," said Forbes.

What can I do if I'm behind on saving for retirement?

Worried you are behind on saving for retirement? Rest assured, there are ways to catch up. Here are some suggestions:

Make sure you're taking full advantage of your company's 401(k) match.
Maximize your retirement account contributions.
Look for ways to increase your income.
Pay down any debt you have, so you can shift that money towards retirement savings.
Diversify your retirement savings strategies, such as by opening an individual retirement account (IRA) or brokerage account.
Take advantage of catch-up contributions if you're 50 or older.

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.