Are You Saving Enough for Your Retirement?

Saving for retirement is not easy. A lot of people struggle to cover today's bills, never mind putting extra cash aside in a brokerage account for tomorrow. As such, it's not so surprising that over 60% of Americans worry they won't have enough money for their old age, per a recent AARP survey.

There are a few ways to approach this. You can aim to save a percentage of your income. You can also set a target based on the amount you think you'll need and work backward. A financial adviser can help you make a retirement plan that's tailored to your needs.

Answer these questions to find out if you're saving enough.

1. Are you saving 15% of your income?

The analysts at Fidelity reckon that if you contribute 15% of your earnings from age 25 to 67, you'll be able to build a big enough nest egg to live comfortably once you retire. So if you earn $60,000 a year, the idea would be to put $9,000 of that into your retirement account. As your pay increases, so does the amount you sock away.

It helps if you have a 401(k) and your employer matches part of your contributions. Let's say your employer matches every dollar you put in up to 4% of your salary. In the example above, that would mean you'd be able to contribute $6,600 and your employer would put in $2,400.

Knowing what's enough: By this logic, you're on track if you've been investing 15% of your salary since you were 25. If -- like many of us -- you start later than 25, you'd need to put away a higher percentage of your salary.

2. Are you maxing out your tax-advantaged contributions?

If you don't have access to a 401(k) through work, you can use an individual retirement account (IRA) to get tax breaks on your retirement savings. There are a couple of different types of IRAs as well as limits on how much you can contribute each year. The maximum total contribution you can make to your IRA in 2024 is $7,000 ($8,000 if you're over 50).

Broadly speaking, a traditional IRA will reduce your tax bill today. With a Roth, you contribute post-tax dollars and make tax-free withdrawals once you retire. The great thing about Roth IRAs is that investments can compound tax free, so you won't have to pay tax on your gains. There are also IRAs designed for freelancers and small business owners.

It is easy to open an IRA. The best brokers for IRAs have a broad mix of investments, low fees, and accessible tools. Some brokerages, like Robinhood, will even match some of the money you put in. WARNING SCL [brokerage slug=robinhood field=apply_url] does not generate a link. Anchor tag will not render in production.Click here to find out more about Robinhoods 1% IRA match and open an account.

Knowing what's enough: If the very idea of retirement planning gives you a headache, start by maxing out your IRA contributions. There's no one-size-fits-all retirement figure, but it's unlikely to be enough on its own. Even so, sometimes taking that first step is half the battle.

3. Do you know how much you need?

We can use different rules of thumb to estimate retirement needs. One says that we'll need about 80% of our preretirement income once we stop working. So, if your salary is $60,000 a year now, you might need $48,000 once you retire.

You won't need the whole amount to come from your investment portfolio -- other income streams (such as Social Security) will make a difference too. If you'd get, say, $20,000 from other sources, you'd need to generate $28,000 a year from your retirement fund.

So how big would your portfolio need to be to pay $28,000 plus inflation every year for the rest of your life? This is where another financial guideline -- the 4% rule -- comes into play. The idea is that you can safely withdraw 4% of your fund in your first year of retirement. After that, you can take out that amount adjusted for inflation for the next 30 years.

So to get $28,000 in your first year, the math would look like this:

• Year 1 amount ÷ 0.04 = Retirement fund target
• $28,000 ÷ 0.04 = $700,000

Knowing what's enough: In the above scenario, you'd need a fund of $700,000 to retire comfortably. Do your own calculations to work out how much you might need and how close your current contributions will get you.

Bottom line

If all of the math and estimates feel overwhelming, don't let that stop you from investing. The most important thing you can do is get started. The more years you invest, the more time compound interest can work in your favor.

Start by putting at least 15% of your paycheck into your retirement account. You can then try to increase that figure each year. And, as you get closer to retirement, you can talk to a financial planner or use retirement calculators and revisit your contributions.