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Save the Right Amount for Retirement
by Kimberly Lankford

I've heard that it's a good rule of thumb to save 10% of my income each year. Will that be enough to cover my retirement?

It depends on how old you are, how much you've already saved, and any guaranteed sources of income you'll have in retirement, like a pension.

A study by T. Rowe Price found that a 30-year-old would need to save 11% of his income per year to amass a lump sum that provides 70% of his current income level in retirement (adjusted for inflation). The number rises to 21% if he waits until age 40 to start saving. But if that 40-year-old had already saved an amount equal to his annual salary, he'd only need to set aside another 14% per year. If you want your investments to provide more than 70% of your current income in retirement -- which you probably will if you don't have a pension -- you'll need to increase those figures.

For help figuring out how much you need to save, first check out our How Will Retirement Affect My Expenses? calculator, then run your numbers through our Am I Saving Enough for Retirement? calculator.

To double check your estimates, try a Monte Carlo simulation, which runs through thousands of investment scenarios and assesses the likelihood that you'll reach your retirement goals. Financial Engines offers a personalized retirement forecast, plus an investing newsletter, and advice for $39.95 per quarter or $149.95 per year. Many employers and brokerage firms provide free access to Financial Engines (or provide similar simulators).