A quick way to tell if you’re saving enough for retirement

I came across a study done published in the Journal of Financial Planning that provides a quick way to tell if you’re saving enough for retirement. The article, National Savings Rate Guidelines for Individuals, uses a more nuanced approach than many retirement calculators.

The authors calculate retirement income needs based on net pre-retirement income. Most calculators have you input your current gross income. This is important because in retirement, you’ll obviously not be saving for retirement. They also use Monte Carlo simulation and data from Ibbotson Associates in their calculations (one of the authors is Roger Ibbotson).

So here’s the quick method. The table below shows what you need to save now to replace 80% of your net income at retirement. Simply find your age and income. You can adjust the number for savings you already have.

For example, let’s say you’re 35 years old, make $60,000, and have saved $40,000 for retirement. Your base savings rate is 16.4% and you adjust it down by 0.55% x 4 = 2.2%. To replace 80% of your net income at retirement, you need to save 14.2% of your current gross income.

How easy is that?