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How Much to Save for Retirement

Rules Of Thumb Put to The Test.

How much should I be saving in order to stay on track for retirement?

This is one of the most common questions that I receive on a day-to-day basis; and with a simple Google search, you can find many different answers. According to, You should consider saving 10-15% of your income for retirement. Investopedia, CNN Money, The Balance all point to a similar method of putting money in a jar save for retirement HFG Trust

Given that a widely accepted goal is to save 15% of your income, I would like to know what that future actually looks like. In order to put this to the test, however, we will have to make some assumptions:

  1. Russell and Janet Brown each make a starting salary of $36k per year. Their income grows annually at 3% per year.
  2. Russell and Janet start from ground zero: no debt, no assets.
  3. The Browns contribute 15% of their pre-tax earnings to a tax-deferred retirement account with no employer match.
  4. After saving 15% of their pre-tax earnings for retirement each pay period, they spend the remainder of their income.
  5. Their investment returns follow the glide path (risk exposure decreases as retirement approaches, beginning with 90% stocks pre-retirement and ending with 60% stocks once retired).
  6. The Browns both retire at full retirement age, or age 67, and live to age 90.
  7. In retirement, Russell and Janet spend 80% of their best-year pre-retirement income.

Here are the results:

This is pretty interesting — the rule-of-thumb savings target came up short. In practice, there are a few things we can do to resolve this situation:

  1. Lower spending goals in retirement
  2. Save more money while working
  3. Work longer (past age 67)
  4. Earn more money

Lower Spending Goals in Retirement

What does this analysis look like if the Browns spend only 60% of their retirement income instead of 80%?

That is looking much better, but we should take a deeper dive into what is going on here. Initially, I set a spending goal of 80% of the Browns’ top earning year of their career (the year right before they retired). Their combined projected income for that year is $234,867. However, that is after they have each received annual 3% raises for their entire working life. The 15% that the Browns were saving was not based off of that top earning number. It initially started out as $10,800 per year and grew over time along with any raises they received. When it came time to spend their retirement savings, we were planning to spend 80% of their top earning year during their working life repeatedly in retirement for over 20 years.

In the first scenario, the portfolio was drained at age 80 and some change. The blend of saving while working and spending in retirement was heavily weighted toward spending in retirement. Because of that, the portfolio went down to $0 prior to their planning horizon. While decreasing the amount spent clearly prolongs the portfolio, in order to quantify that there are some calculations required.

I could go on looking through the different variables that contribute to a retirement analysis, but the main takeaway that I would like to drive home is this: while you are working, you do need to be saving. You also need to have realistic expectations about what retirement should look like. The best way to figure that out is to meet with a financial planner for a more in-depth discussion and to create a personalized plan.

Brent Schafer, CFP®

Wealth Planner, HFG Trust


This memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. Community First Bank, HFG Trust, and HFG Advisors have no duty or obligation to update the information contained herein. Further, Community First Bank, HFG Trust, and HFG Advisors make no representation, and it should not be assumed that past investment performance is an indication of future results. Moreover, wherever there is potential profit there is possibility of loss. This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services, banking services, or an offer to sell or solicit and securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Community First Bank, HFG Trust, and HFG Advisors believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This memorandum, included the information contained herein, may not be copied, reproduced, republished, or posted in any form without the prior written consent of Community First Bank and/or HFG Trust and/or HFG Advisors. HFG Advisors, Inc, is a wholly owned subsidiary of HFG Trust, LLC. HFG Trust, LLC is a Washington state-registered Trust company and wholly owned subsidiary of Community First Bank.