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Essential principles of setting basic saving goals

Can you run out of money? Yes, you definitely will run out of money, unless you take a conscious steps towards laying down some strong foundational steps. It really does not matter much whether you are making $60,000 per year or $200,000. If you do not save and invest, the future of a general family is bleak.

I might be sounding too aggressive and pessimistic, but I feel it is better to be a bit worried today, instead of in future when you really need the money. I understand that I cannot make a sweeping generic statement because everybody is unique, with unique situations, but here are a few facts to ponder upon.

I have read many times people commenting that they aim to save at least about $100,000 for retirement.

Do you think $100,000 sounds like a big amount? 


  • For a moment, let us not consider any alternate income sources such as social secruity income
  • Assuming annual before-tax return of 5% on the amount
  • Assume that you may need to withdraw about $7000 every month at retirement age (around 67) to continue your lifestyle
  • Few other minor assumptions
At this rate, this amount would last you for just 1.3 years, allowing you to withdraw a total of $103,283. Try your own simulation here.

The accumulated $100,000 amount might be fine if you intend to withdraw just around $500 every month due to other income sources at retirement, but I do not think that is enough for a lot of people to continue their standard of living.

Now let's be a bit more liberal, and assume that you are able to save around $300,000 by age 66.
Assuming that you will need money till age 92. You would still be able to withdraw just around $1200 per month as shown below. 

With $300,000 saved, you can withdraw only about $1200 per month

At this withdrawal rate, for every 10 years, your balance would decrease by about $107,000.

I am a bit worried. Is there a way to quickly check how much do I need to save/ today?

A lot of research and studies have been done on what are the general expenses and some high-level directional rule of thumbs. These are just to do a very high-level check if you are on the right track. After a high-level check using these rules, you should always dive deeper to add more facts and tweak your solution to get a better number and strategy in place.

If you foresee that at age 67 you may stop receiving income from other sources, then here is how much you should aim to save today:

By salary

Here is how you can do a quick check of your goals, based on what your salary is today. This method was recommended by Fidelity.

Start saving per month enough today so that:
  • By age 30, you have accumulated an amount equal to your salary today.
  • By 40, you have three times your salary
  • By 50, you have six times your salary
  • by 60, you have eight times your salary
  • by 67, you have ten times your salary
This means, if your total salary is $100,000 per year today then you should aim to save the below amounts by the specified ages. This will give you a head start, but you would need to dive deeper and increase your savings as required for your other financial goals.

Example of how much to save, based on current salary


By expenses


The other way of seeing your savings goal is the famous 4% rule. This says that you should aim to save about 25 times of your annual expenses. As an example, if you calculate that your per month expenses today are about $7,000 then your annual expenses would be $84,000. Twenty-five times of this become $2,100,000. This is the amount you should aim to have saved by the age 67.
With that amount, you should be able to withdraw about $8000 every month. Read more about how the 4% rule works here.

Any additional incomes such as social security etc. would augment your savings.


Example of how much to save, based on current expenses


Do you feel guilty yet for not having saved enough? If yes, begin today by doing a reality check of your monthly expenses today, and what more can you begin adding to your investments on a monthly basis. Remember not to try and time the markets for the best time to begin investing. The right time is today.


Did you find any tools or tips to estimate your saving goals? Do share in the comments below on this or related thoughts.
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