Determining a Target Retirement Saving Rate
A secure retirement is one of your goals, right? The worksheet in this video can help you get there.
When setting up your budget, it is important to include retirement savings. You can save through a retirement plan at work, on your own, or both. The target retirement savings rate tool will help you determine how much you need to save each year. The sooner you start saving, the longer your savings have to grow.
The worksheet will help you estimate what percentage of your current annual salary you should be saving. While it does not take into account your unique circumstances, it will help you plan for your retirement goals.
The worksheet asks for four pieces of information:
- Number of years until retirement (your planned retirement age minus your current age)
- Current annual salary
- Number of years you expect to spend in retirement
- Current savings
The worksheet assumes that you’ll need to replace about 80 percent of your pre-retirement income. Social Security retirement benefits should replace about 40 percent of an average wage earner’s income after retiring. This leaves approximately 40 percent to be replaced by retirement savings. Keep in mind, this is an estimate and you may need more or less depending on your individual circumstances.
How many years do you have left until retirement?
The more years you have until retirement, the less you will have to save each month to reach your goal. No matter your age, for every 10 years you delay starting to save for retirement, you need to save 3 times as much each month to catch up.
How long will you live in retirement?
Based on current estimates, a 65 year old man can expect to live approximately 18 years in retirement, and a 65 year old woman can expect to live about 20 years, but many people live longer. Planning to live well into your 90s can help you avoid outliving your income.
The worksheet takes into account some factors that impact your retirement savings. First, investing - because it involves risk. Second, inflation - because today’s dollars will usually buy less each year as the cost of living rises. Your target savings rate includes any contributions your employer makes to a retirement savings plan for you, such as an employer matching contribution. If, for example, you are in a 401(k) plan in which you contribute 4 percent of your salary and your employer also contributes 4 percent, your saving rate would be 8 percent of your salary.
By using the worksheet, you’ve figured out your target savings rate. It gives you a rough idea –a savings goal. Some may face higher expenses in retirement because of personal circumstances. For example, if you or your spouse have a chronic medical condition, you may want to save more. Some may have other sources of income in retirement such as a traditional pension or money from selling a home that would lower their target savings rate.
If you are not currently saving this amount, don’t be discouraged. The important thing is to start saving – even a small amount – and increase that amount when you can. Come back and update this worksheet from time to time to reflect changes and track your progress.
Here are a few tips on how to save smart for retirement:
- Start now. Time is critical. Start small, if necessary.
- Use automatic deductions from your payroll or your checking account.
- Make saving for retirement a habit.
- Be realistic about investment returns.
- If you change jobs, keep your savings in the plan or roll them over to another retirement account.
- Don’t dip into retirement savings early.
- If you pay someone for investment advice, ask them to confirm in writing that they are “fiduciaries”—meaning they are obliged to work in your best interest.
To track other resources you may have in retirement, start by getting your Social Security statement and an estimate of your retirement benefits on the Social Security Administration’s website, www.socialsecurity.gov/mystatement.
The online interactive target retirement savings rate worksheet and other financial planning worksheets are available on EBSA’s website: www.dol.gov/agencies/ebsa. You can save your worksheet data there so that you can come back to update it to track progress or adjust for changes.
You can order a free copy of the Savings Fitness publication or contact a Benefits Advisor with questions electronically at askebsa.dol.gov or by calling toll-free 1-866-444-3272.
Get started today for a secure financial future!
Social Security provides you with a source of income when you retire or if you cannot work due to a disability. It can also support your legal dependents (spouse, children, or parents) with benefits in the event of your death.
What’s Social Security?
Social Security is a program run by the federal government. The program works by using taxes paid into a trust fund to provide benefits to people who are eligible. You’ll need a Social Security number when you apply for a job.
How do benefits work, and how can I qualify?
While you work, you pay Social Security taxes. This tax money goes into a trust fund that pays benefits to:
Those who are currently retired
People with disabilities
The surviving spouses and children of workers who have died
Each year you work, you’ll get credits to help you become eligible for benefits when it’s time for you to retire. Find all the benefits the Social Security Administration (SSA) offers.
There are four main types of benefits that the SSA offers:
How to Open a “my Social Security” Account
If you receive or will receive Social Security benefits, you may want to open a "my Social Security" account. This online account is a service from the SSA that allows you to keep track of and manage your SSA benefits. You can also make changes to your Social Security record.
How to Find More Help
If you have specific questions about your Social Security benefits, you can:
Read up on how to correct calculation errors. Find out if your pension is covered if the company defaults. See if there's an unclaimed pension owed to you or someone you know.
Avoid Errors in Pension Calculation and Get Help Fixing Them
If your job is covered by a traditional pension plan, make sure you get the pension amount you're owed.
Find ways to protect yourself. Read these 10 common causes of errors in pension calculation.
Get free legal help if you're experiencing a problem with your pension plan.
Find out whether your pension or annuity income is taxable.
For questions or complaints about your plan, contact your human resources office. Or contact the Employee Benefits Security Administration (EBSA) regional office near you.
Federal Insurance for Private Pensions
If your company runs into financial problems, you're likely to still get your pension.
The Pension Benefit Guaranty Corporation (PBGC):
Insures most private-sector defined-benefit pensions. These are plans that typically pay a certain amount each month after you retire. These are single-employer plans. Multi-employer plans have different coverage.
Covers most cash-balance plans. Those are defined-benefit pensions that allow you to take a lump-sum distribution.
Is Your Pension Insured?
Search PBGC's database of insured plans.
If your plan is insured and it ends without enough money to pay all benefits, PBGC steps in. PBGC will pay you the money you’re owed, up to legal limits.
To learn more about PBGC-insured pensions, view these frequently asked questions.
Find an Unclaimed Pension
More than 80,000 people in the U.S. have not claimed the defined benefit pensions they've earned. Find out if you, or someone you know, is owed a pension.
If you've retired from the federal government or plan to, get to know the Office of Personnel Management (OPM)'s retirement services. You can contact them for help with your federal retirement benefits.
Federal Employee Retirement Planning and Management
OPM has information to help you:
Find answers to common questions about federal retirement
Thrift Savings Plan for Current Employees
As a current federal employee, you can contribute to the Thrift Savings Plan (TSP). The TSP offers the same types of savings and tax benefits as a 401(k) plan.
Retirement Credit for Military Service
Military service does not automatically count toward civil service retirement. To receive credit for military service performed after 1956, you must pay a deposit.
Federal Taxes on Government Pensions
Your pension or annuity payment may be taxable. Find out with the online tool Is My Pension or Annuity Payment Taxable?
Survivors of Federal Employees and Retirees
If you’re the survivor of a federal employee or retiree, you may qualify for death and survivor benefits. Visit the OPM website to report the death of a federal employee or retiree and apply for death benefits.
Retirement requires a lot of planning and consideration. In addition to finances, you need to think about when and where you’ll retire. Experts advise that you may need as much as 80 percent of your pre-retirement income to continue your current standard of living. The exact amount will depend on your individual needs.
Questions To Ask Yourself Before Retiring
As you plan, consider these important questions:
- At what age do you plan to retire?
- Can you participate in an employer's retirement savings plan? This includes 401(k) plans and traditional pension plans.
- If you have a spouse or partner, will they retire when you do?
- Where do you plan to live when you retire? Will you downsize, rent, or own your home?
- Do you expect to work part-time?
- Will you have the same medical insurance you had while working? Will your insurance coverage change?
- Do you want to travel or pursue a costly, new hobby?
Tools To Help You Prepare for Retirement
To begin planning for your retirement:
- Get tips for building your retirement savings in the Department of Labor’s (DOL) Top 10 Ways to Prepare for Retirement.
- Use a retirement calculator to find out the best age to claim your Social Security benefits.
- Compare the pros and cons of receiving pension payments monthly or in a lump sum.
- Social Security pays benefits that are generally equal to about 40 percent of your pre-retirement earnings. The Social Security Administration helps you estimate your benefits.
- Learn from Investor.gov how you can boost your retirement savings.
- If you have a financial advisor, talk to them about your plans.
Do you have a question?
Ask a real person any government-related question for free. They'll get you the answer or let you know where to find it.
Last Updated: October 28, 2022