How much should I save?

How much should I save? There is no single right number, and any answer that arrives without asking what the money is for is a rule of thumb built around somebody else. The amount is a sum, worked backwards from three things: the target, the date you want it by, and the return you assume in between. The savings goal calculator does exactly that sum for your own figures, under three return assumptions at once.

The sum, worked once

Say the goal is $50,000 in ten years, starting from nothing. Kept in cash earning nothing, that is $416.67 a month, because there is no growth to help. If returns average 4%, it is $340.84. If they average 7%, it is $292.31.

Three answers to one question, and none of them is wrong. Each is the right answer for its assumption. The question “how much should I save” only has a single answer once the target, the date and the return are fixed. Change any one and the monthly figure moves.

Time moves the answer more than anything

Hold the target at $250,000 and change only the time available:

• 10 years: $1,704 a month at 4%, $1,462 at 7%, $1,251 at 10%
• 20 years: $687, $493, $348
• 30 years: $365, $214, $121
• 40 years: $215, $101, $45

Over ten years, the return barely matters: even at 10% the monthly figure is about three-quarters of the 4% one, because most of the pot is still money paid in. Over forty years the gap is nearly fivefold. The longer the horizon, the more the answer depends on a return nobody can know in advance, which is why a single figure for a long goal is less certain than it looks. The first 100k guide shows the same effect from the other direction.

How much should I save for retirement?

The same method, with one extra step: the target has to be worked out first. Start from spending rather than a round number. If the aim is $40,000 a year in today's money, and you assume you will draw 4% of the pot each year, the pot is $40,000 ÷ 4% = $1,000,000. The 4% is a choice, not a law; the guide to whether the 4% rule is still valid explains where it came from and what it assumed. The retirement number calculator runs this step at any rate you pick.

Because that $1 million is in today's money, the monthly saving has to be too, and the return has to be the real one, after inflation. At 2% inflation, the Federal Reserve's stated longer-run goal and used here as an illustration rather than a forecast, returns of 4%, 7% and 10% become real returns of 1.96%, 4.90% and 7.84%. The monthly saving needed, kept level in today's money:

• Over 40 years: $1,379 at 1.96% real, $691 at 4.90%, $324 at 7.84%
• Over 35 years: $1,664, $921, $484
• Over 30 years: $2,048, $1,248, $731
• Over 25 years: $2,592, $1,731, $1,126

Starting ten years later, with 30 years instead of 40, multiplies the monthly figure by about 1.5 at the lowest return and about 2.3 at the highest. The more you are counting on growth, the more those lost years cost. None of this counts tax, fees, or any pension or Social Security income, all of which would change the target.

How much of my income should I save?

A percentage of income is the most common way the question gets asked, and the least informative way to answer it, because a percentage says nothing about what it produces. The arithmetic can be turned round, though: take a share of salary, save it every month, and measure the pot in years of salary. With salary held flat in today's money and real returns of 2%, 4% and 6%:

• 10% for 30 years: 4.1, 5.7 or 8.1 years of salary. For 40 years: 6.1, 9.7 or 15.9
• 15% for 30 years: 6.1, 8.6 or 12.2. For 40 years: 9.1, 14.5 or 23.9
• 20% for 30 years: 8.2, 11.4 or 16.2. For 40 years: 12.2, 19.4 or 31.8

At a 4% withdrawal rate, a pot of 9.7 years of salary pays out about 39% of that salary a year. Saving 15% for 40 years at a 4% real return reaches about 58%; 20% reaches about 77%. Whether any of those is enough depends entirely on what you plan to spend and what other income you will have, which is why a share of income on its own cannot tell you whether you are saving enough. It is the starting point of the sum, not the answer to it.

An emergency fund is a different sum

Not every goal is a growth question. An emergency fund is sized from what you spend, not from a return: months of essential costs times the number of months you want covered. At $3,000 a month of essentials and six months of cover, that is $18,000. Starting from $2,000 and adding $300 a month, it takes 4 years 6 months at no interest, 4 years 1 month at 4%, and 4 years at 5%. The rate barely moves the date, because the money is not there for long enough to grow much. The emergency fund calculator works it for your own costs and coverage.

When there is more than one goal

Most people are saving for several things at once, and the monthly figures simply add up. When the total is more than what is available, the arithmetic does not pick a winner. It shows the levers: a later date, a smaller target, a different return assumption, or a larger monthly amount. Each goal can be run separately and the results compared, which makes the trade-off visible even though it cannot make it for you.

Not financial advice. Every figure assumes a steady return at the rate stated, contributions at the end of each month, no fees and no tax. Real returns vary from year to year, so treat each monthly figure as what that assumption produces, not as a recommendation.