Retirement Savings

One of the most important decisions any person can make is to start saving for retirement. Being financially secure in retirement is a near-universal goal, shared by most adults living in the United States.

Despite this, most people don’t know whether they are saving enough or how to even get started. This article serves as a starting point by providing a brief overview of three fundamentals truths everyone should know when saving for retirement.

1. Retirement Income Gap

There’s no shortage of advice on how much retirement money a person should have saved by specific ages. For example, Fidelity Investments recommends having savings equal to your salary by age 30, two times your salary by age 35, four times your salary by age 45, and eight times your salary by age 60.

Even though these generic retirement savings targets may serve to educate people on the importance of retirement planning, they don’t actually tell individuals what they will personally need. Everyone’s situation is unique and ever-changing, which requires a thorough understanding of their specific goals, individual financial habits, and even their behavioral biases.

In addition, simply looking at an account balance doesn’t answer the question of whether or not someone will be able to replace their income in retirement. Let’s say someone is retiring in 15 years, has a 401(k) balance of $500,000, and has a current monthly income of $8,000. While this sounds good on the surface, there isn’t enough information provided to determine whether they will have the monthly retirement income required to finance a comparable lifestyle.

Consequently, it’s important that individuals understand their own personal needs and objectives. It is extremely useful to discuss projections with your retirement plan provider. They should be able to tell you how much monthly income you are on-track to replace in retirement. When doing so, they provide the amounts in today’s dollars. This clearly outlines three important pieces of information:

  1. How much the client needs to replace on a monthly basis.
  2. How much income they are on-track to replace.
  3. Their retirement income gap shortfall.  


It should be noted that online reports and statements typically use age and investment return averages to determine retirement income projections. Although this is useful information, it is important to ensure that any financial planning projections used reflect your unique situation. 

2. Retirement Income Sources – Where To Get Money When You’re Retired

There are three primary sources of income that people may have access to in retirement: personal retirement savings, Social Security, and pensions.

  • Personal retirement savings: Most retirement savings plans consist of Individual Retirement Accounts (IRAs) or employer-sponsored defined contribution plans, such as a 401(k), 403(b), or a 457(b).  
  • Social Security: This is a federal program that provides retirement benefits at the Full Retirement Age (FRA). The age at which someone is eligible to receive full benefits depends on their birth year. However, all who pay into the system are eligible to start receiving reduced benefits at age 62.
  • Pension: The number of employers providing pensions has dropped significantly over the past few decades. That said, a quarter of U.S. workers still participate in a pension plan, most of whom are employed in public service. Pension payments in retirement are typically calculated using a formula that considers one’s age, years of service, and salary.

3. Retirement Savings Rate: How Much Should You Be Saving Each Month For Retirement?

Numerous articles, advisors, and organizations provide suggested savings rates for a future retiree. These seek to spell out how much a person should be saving on a monthly basis in order to successfully retire.

The Center for Retirement Research at Boston College found that, on average, people need to be saving 15% of their current income in order to replace 70% of their income in retirement. Having said that, younger workers who start saving in their twenties can get away with saving much less (10% now to retire at age 65), while older workers need to save much more (a 45 year old needs to save 27% now to retire at 70).   

As was discussed in the Retirement Income Gap section, the calculations above may or may not apply to your specific situation. Many advisors recommend replacing far more than 70%, for example. Most fall into the 80% to 90% range, and some – due to the rising cost of healthcare – recommend planning for 100% income replacement.

The most important thing to do when saving for retirement is to develop a strategy that accounts for your personal retirement needs. When creating this savings strategy, think in terms of the Goldilocks Principle: you don’t want to under-save, but you also don’t want to make needless sacrifices today by over-saving. You need to determine the savings rate that is just right for you.  

If you are unsure of where to start, Zoe Financial can help. Zoe partners with a curated network of independent and fee-only fiduciary advisors, who have been carefully selected as a result of their experience and standards of client care.

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