Will Saving 10% of Your Income Be Enough to Retire?

by Kevin on December 10, 2012

As human beings we like numbers, especially round ones. If I want to plan for retirement, don’t give me a lot of charts and graphs, just give me a percentage that I need to save.

A common percentage is 10%. It’s simple. It seems doable. And if you’re a Christian, it matches the tithe, so it must be right.

Maybe not.

Factors that can complicate simple retirement planning

Age is a major factor. If you’re in your 20’s and begin saving 10% of your pay faithfully for the next 40 years, you’ll probably get there. Starting to save early is one of the most reliable ways to reach your retirement goals. As long as you don’t tap your retirement savings sometime along the way. If you’re in your 30’s or 40’s and have little in the way of retirement savings, you’ll need to save more than 10%, and probably way more.

Some other reasons why 10% won’t be enough:

  1. Inflation—not only are prices likely to rise between now and the time you retire, but they’ll keep rising once you retire
  2. Boomerang kids—adult kids are returning home in record numbers, and it’s something you’ll have to be prepared for
  3. Living the high life—if you grow accustomed to living well during your working years, you’ll almost certainly carry that preference into retirement
  4. Debt—more people are carrying mortgages and other debt into retirement than ever
  5. Nervous financial markets—we’ve had two stock market crashes in this young century already
  6. Rising health care costs—our country had been debating this issue for decades but there’s still no end in sight

To be sure, these issues complicate retirement planning at any level. But they do cry out for higher retirement contributions than we may be comfortable making.

It may be tough for many people to invest more than 10% for retirement, but the effort has to be made. What are some ways you can save more money for retirement?

Non-retirement savings

When saving for retirement it’s important to look beyond traditional retirement vehicles. You can save money outside of those plans to. The advantage to doing it is that the money you save outside your retirement plan will be available to meet more current financial needs, should they develop.

A growing emergency fund, investment account or CD portfolio can be secondary retirement accounts. Any investments that you don’t use up prior to retirement, will be available for that purpose when the time comes.

Your home

During the refi-mania phase of the mortgage industry in the 1990’s and early 2000’s, it became common practice for homeowners to refinance their home loans with every downtick of interest rates. Along the way, they took equity out, recast 27 year loans back to 30, and sometimes took risky adjustable rate mortgages.

None of those moves got them any closer to ever paying off their homes. In fact, it was a recipe for permanent mortgage debt. Millions of people now own more on their homes than they did when they bought them.

That’s terrible retirement planning! Every asset you own is a potential retirement asset, and that includes your home. Plan to be very deliberate about paying off your home as far in advance of retirement as possible. Not only will it leave you with a mortgage-free home, but it will also give you a very large asset to sell in the event you need more liquid retirement assets.


We’ve touched on high living and delved a bit into the importance of paying off your mortgage before retiring. Both topics point to an issue that has the potential to undo an otherwise solid retirement plan: debt.

Debt raises your cost of living, and while you may be able to handle that quite comfortably during your working years (especially if your income rises steadily) it won’t work at all when you’re retired and on a fixed income.

The less money you need to live on, the less money you will have to save for retirement. The less debt you owe, the less money you’ll need to live on. It’s a simple relationship, but one you need to be aware of. The debt burden you’ve carried throughout your working life will be a millstone in retirement.

Make sure it isn’t there by the time you retire.

Though we may not think of it, paying off debt is a form of investing. We’re “investing money” to pay off debt to lower our living expenses. That isn’t much different from saving money to invest to produce income. We can even think of it as two sides to the same coin.
Saving 10% for retirement may get the job done—if you’re young enough. If you aren’t, it can still work, but there are a few other things you’ll have to do along with it.

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