What Percentage of Your Income Should You Save for Retirement?
- Matt Brennan, CFP®
- Sep 6
- 11 min read
Most people should save a minimum 15% of their gross income for retirement, including employer contributions. But, uncontrollable factors, like a job loss or health issues, can disrupt your savings plan. As a result, a better target is to save 20%. If you start later or have higher income, you may need to save more.
One of the most common financial planning questions is: What percentage of your income should you save for retirement?
Deciding how much to save for retirement can feel overwhelming, especially when you balance lifestyle expenses, children’s education, and rising costs of living. But the truth is, the earlier you set a clear savings target, the easier it becomes to reach financial independence.
At Covenant Wealth Advisors, we work with affluent individuals and families who want clarity and confidence in their retirement plan. The right savings percentage can vary, but research and experience point to practical benchmarks that work for most people.
Key Takeaways
Saving 15% of gross income (including employer match) is a widely accepted baseline for retirement readiness.
Social Security typically replaces about 40% of average pre-retirement income, but less for higher earners.
The later you start saving, the higher your contribution rate needs to be—often 20–30%+ if starting in your 40s or 50s.
Use salary-multiple milestones (1x by 30, 3x by 40, 6x by 50, 8x by 60, 10x by retirement) to stay on track.
Automating increases of 1–2% per year makes saving painless and effective.
High earners should often aim for 20–25% savings rates to replace income Social Security won’t cover.
Diversifying between Roth and pre-tax accounts provides flexibility for retirement tax planning.
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Why 15% Is the Standard Rule of Thumb
Many financial institutions, including Fidelity and Vanguard, recommend saving around 15% of gross income for retirement. This figure includes your contributions and any employer match you receive.
This rule assumes:
You begin saving in your 20s or early 30s.
You invest consistently in a diversified portfolio.
You plan to retire around age 65–67.
When followed, this approach helps most households replace 70–80% of their pre-retirement income when combined with Social Security.
Pro Tip: If you’re already saving 10% through payroll deductions and your employer matches 5%, you’re hitting the 15% target without increasing your own contribution.
How Your Age Impacts Savings Percentages
The ideal savings rate depends heavily on when you start. The later you begin, the higher your savings rate must be.
Example Savings Rate by Age (Including Employer Match)
Current Age | Suggested Savings Rate |
25 | 9–13% |
30 | 13–18% |
35 | 17–22% |
40 | 21–28% |
45 | 26–35% |
50 | 33–43%+ |
If you’re starting in your 40s or 50s, saving 25% or more may be necessary to catch up.
Pro Tip: Maximize catch-up contributions to retirement accounts after age 50. In 2025, you can contribute an extra $7,500 to 401(k)s beyond the $23,000 base limit (IRS.gov).
High Earners Need to Save More
Social Security benefits replace a smaller percentage of income for higher earners. While average workers may get 40% of pre-retirement earnings from Social Security, high earners may only replace 20–30%. This means a larger share must come from personal savings.
Megan Waters, CFP®, notes: “High-net-worth individuals can’t rely on Social Security the way average earners can. The more you earn, the more intentional your retirement savings strategy must be.”
For affluent families, aiming for 20%+ savings rates is often necessary, especially if retirement goals include travel, gifting, or legacy planning.
Case Studies: Saving Early vs. Saving Late
Consider two individuals:
John (Age 30): Saves 15% of his $200,000 income until age 67. Assuming 6% annual returns and flat contributions of $30,000 per year, John accumulates roughly $3.82 million by retirement. If his contributions rise over time with salary increases, his nest egg could grow significantly larger.
Susan (Age 45): Starts saving 15% of her $200,000 income at age 45. By 67, she accumulates about $1.3 million under the same assumptions. To catch up, Susan would need to save closer to 30% of income or plan for later retirement.
The difference comes down to time in the market. The earlier you begin, the more compounding works in your favor.
Investment Strategy and Savings Rates
Here's the thing, a simple rule of thumb isn't enough. Why?
Your investment strategy directly impacts how much you need to save. Conservative investors who hold too much in bonds early in their career may need to save more to compensate for lower growth. On the other hand, a diversified mix of stocks and bonds typically allows the 15% rule to hold true.
Scott Hurt, CFP®, CPA, explains: “The right savings rate depends on both contributions AND returns. A disciplined savings plan combined with long-term stock exposure gives you the best chance to meet your goals without over-saving.”
At Covenant Wealth Advisors, one problem we often see with younger investors is that they don't invest aggressively enough. This can create catastrophic problems down the road in retirement.
Behavioral Finance: Why People Under-Save
Many individuals struggle to save consistently because of behavioral biases:
Present bias: Favoring today’s spending over future security.
Lifestyle creep: Increasing spending as income rises.
Procrastination: Delaying retirement saving because it feels far away.
The antidote? Automation. Setting automatic contributions and auto-escalation takes emotion out of the equation and ensures steady progress.
Pro Tip: Tie annual contribution increases to your annual raise. If you receive a 4% raise, allocate 1–2% toward retirement savings before you see the difference in your paycheck.
But, there are additional savings disruptions that can interfere with your retirement savings game plan. These include a job loss, supporting aging parents, market downturns, and health issues.
So, how do you mitigate these risks?
Megan Waters, CFP® at Covenant Wealth Advisors in Richmond, VA, notes: “Life rarely follows a straight line. Clients who plan for 20% minimum savings rates, instead of 15%, can weather these inevitable disruptions without derailing their retirement timeline.”
Pro Tip: Build emergency savings equal to 12 months of expenses before maximizing retirement contributions to avoid tapping retirement accounts during financial disruptions.
What Happens If You Can't Save 20% Right Now?
If you cannot save 15 to 20% of gross income, immediately focus on increasing earnings or reducing lifestyle expenses rather than accepting lower savings rates. Compromising on retirement savings creates compounding problems that become exponentially harder to solve over time.
Start with a comprehensive expense audit. Many high earners discover significant savings opportunities in subscription services, dining expenses, luxury purchases, and lifestyle inflation areas.
Even temporary expense reductions can jumpstart higher savings rates. If you can't reach 20% immediately, set a reasonable target for short term savings, such as building an emergency fund, and gradually increase your goal as your financial situation improves.
Consider income optimization strategies including negotiating salary increases, developing additional income streams, or accelerating career advancement. Professional development investments often generate substantial returns through higher earning potential.
Lifestyle adjustments may feel uncomfortable initially but become routine quickly. Downsizing housing, choosing less expensive vehicles, or reducing discretionary spending can free substantial funds for retirement savings.
The mathematical reality is unforgiving: starting retirement savings late or at insufficient rates requires dramatically higher future contributions or lifestyle compromises in retirement. Neither option is appealing compared to current adjustments.
Pro Tip: Automate savings increases tied to income growth, directing at least 50% of raises toward retirement contributions before lifestyle inflation takes hold. Set up automatic transfers from your paid income into a dedicated savings account to support consistent progress toward your goals. If you need to reduce your savings rate temporarily, it makes sense as long as you have a plan to increase it over time.
When Should You Start Aggressive Retirement Saving?
Begin aggressive retirement saving immediately, regardless of age, to prevent lifestyle creep and maximize compound growth benefits. The earlier you start saving, the more time your money has to grow, leading to a more secure financial future. Early aggressive saving is exponentially more effective than attempting to catch up later with higher contribution rates.
Lifestyle creep represents the greatest threat to retirement security among affluent professionals. As income increases, expenses naturally expand to match earning levels. Developing good spending habits early in your savings journey can help you stay motivated and stick to your savings strategy, making it easier to resist lifestyle creep. Reversing established lifestyle patterns becomes increasingly difficult as family obligations, housing costs, and social expectations solidify.
Young professionals often delay aggressive saving, assuming future income growth will enable catch-up contributions. This savings strategy consistently fails because lifestyle expenses grow alongside income, leaving the same percentage available for savings despite higher absolute earnings.
Family complexity increases with age, making lifestyle adjustments more challenging. Single professionals can more easily modify spending patterns than parents managing mortgages, school expenses, and extended family obligations.
How Do Modern Economic Realities Affect Retirement Planning?
Contemporary economic factors including inflation, healthcare costs, and extended lifespans require substantially higher retirement savings than previous generations needed. Traditional retirement planning models cannot adequately address these modern challenges.
Inflation has averaged over 3% annually in recent years, dramatically higher than the 2% assumptions in many retirement calculators. Higher inflation rates require proportionally larger retirement nest eggs to maintain purchasing power over 20-30 year retirement periods. Additionally, rising interest rates can impact both savings growth—by offering higher returns on certain accounts—and borrowing costs, making it important to consider these factors in your planning. For example, higher healthcare costs and inflation can erode savings faster than expected.
Healthcare represents the fastest-growing retirement expense category. Long-term care costs average $100,000 annually for nursing home care, while comprehensive health insurance premiums continue rising above general inflation rates.
Extended lifespans mean retirement funds must last decades longer than originally anticipated. Americans retiring at 65 can expect to live 20-25 years in retirement, requiring larger accumulations to fund extended non-working years. Planning for long term goals, such as retirement savings and healthcare needs, is essential to achieving financial stability throughout these extended periods.
Market volatility creates sequence-of-returns risks that weren’t prominent when pensions provided guaranteed retirement income. Early retirement years’ investment performance disproportionately impacts overall retirement security, requiring larger initial balances as buffers.
See How Our Financial Advisory Firm Can Help You Plan for a More Financially Secure Retirement
RETIREMENT INCOME PLANNING - find out when you can retire and if you'll be able to maintain your lifestyle.
TAX PLANNING FOR RETIREMENT - identify tax reduction strategies including Roth conversions, RMD management, charitable giving and more...
INVESTMENT MANAGEMENT - personalized investing to grow and protect your wealth in retirement.
Pro Tips for Staying on Track
Use a simple retirement calculator: Project the savings rate you need based on your current situation using our simple excel retirement calculator.
Automate contributions: Set an annual auto-increase of 1–2% to reach your savings goal without noticing the difference.
Prioritize retirement over college funding: You can borrow for education, but not for retirement.
Consolidate old accounts: Roll over old 401(k)s to streamline investment management.
Work with a fiduciary advisor: Covenant Wealth Advisors helps clients build tailored retirement plans to maximize wealth and minimize taxes.
FAQs
Q: Is saving 20% of after-tax income realistic for most people?
A: Yes, 20% is achievable through proper budgeting and priority setting. Setting clear savings goals and using savings accounts for both short term and long term needs can help you stay on track. Most high earners can reach this target by eliminating lifestyle inflation and directing income growth toward savings. The key is starting before lifestyle creep makes adjustments more difficult.
A: Maximize your employer match in a 401(k) first, as employer matches and employer contributions are valuable parts of your retirement savings. After that, diversify between traditional and Roth accounts, including an individual retirement account (IRA), based on your current versus expected retirement tax brackets. High earners often benefit from traditional contributions during peak earning years and Roth conversions in lower-income periods.
Q: What if my employer doesn’t offer retirement benefits?
A: Open a retirement account such as an individual retirement account (IRA) and taxable investment accounts to reach your 15-20% target. Self-employed individuals can use SEP-IRAs or Solo 401(k) accounts that allow higher contribution limits than traditional IRAs.
Q: Should I reduce retirement savings to pay off debt faster?
A: Continue minimum retirement savings while aggressively paying high-interest debt. Don’t completely stop retirement contributions, as you’ll lose years of compound growth. Prioritize employer matching, then focus on debt elimination, then maximize retirement savings. Make sure your money is working toward your savings goal even as you pay down debt.
Q: How does Social Security factor into retirement planning?
A: Social Security provides minimal income replacement for high earners, typically 15-25% of pre-retirement income. Don’t rely heavily on Social Security in retirement planning calculations. Treat it as supplemental income rather than a primary funding source.
Q: Is it too late to start aggressive saving in my 50s?
A: It’s never too late, but you’ll need higher savings rates to compensate for lost time. Professionals starting aggressive saving at 50 may need to save 30-40% of after-tax income to achieve adequate retirement funding by 65. Set up automatic transfers to savings accounts and aim to save as much as possible to catch up.
Q: How do I handle retirement planning during career transitions?
A: Maintain retirement contributions during transitions by using emergency funds, short term savings, or temporary income reductions rather than stopping savings completely. Use your checking account to manage daily expenses and roll over employer accounts to maintain investment growth and avoid early withdrawal penalties.
Q: What investment strategy should I use for retirement savings?
A: Diversified portfolios aligned with your risk tolerance and time horizon work best. Set clear savings goals and long term goals to guide your investment choices. Younger savers can emphasize growth investments, while those closer to retirement should gradually shift toward more conservative allocations. Consider working with a qualified financial planner to develop appropriate investment strategies.
Q: How do I avoid lifestyle creep while increasing income?
A: Automatically direct income increases toward savings before adjusting lifestyle expenses. Set specific savings rate targets that increase with income growth, and track your progress monthly to keep yourself on target. Prioritize spending goals such as a home down payment, avoiding unnecessary upgrades like a new car, and keeping mortgage payments manageable to prevent lifestyle inflation.
Conclusion
So, what percentage of your income should you save for retirement? The answer depends on your age, income, and retirement goals, but a strong baseline is 15% of gross income, including employer match. High earners and late starters should aim higher, often 20–30% or more.
Combining disciplined saving, tax-smart investing, and milestone tracking can help ensure your retirement years are comfortable and financially secure.
The key is starting aggressive savings immediately, before lifestyle creep makes adjustments more difficult. Whether you're earning $100,000 or $500,000 annually, your retirement security depends on adapting to modern economic realities rather than relying on outdated conventional wisdom.
Don't let the your own behavior compromise your retirement dreams. Take action now to implement appropriate savings rates that will actually fund the retirement lifestyle you've worked so hard to achieve.
Would you like our team to do your retirement planning for you? Contact us today for a free retirement roadmap experience.
About the author:
Senior Financial Advisor
Matt is a Senior Financial Advisor with Covenant Wealth Advisors and a CERTIFIED FINANCIAL PLANNER™ practitioner. He has over 20 years of experience in the financial services industry in the areas of financial planning for retirement, tax planning, and investment management.
Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER™ professional with the assistance of AI. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.