Worksheet 4 can help you figure out how much you need to save each year towards your goal of a secure retirement. It estimates how much you should save as a percentage of your current salary to give you a savings goal. You can save through a retirement savings plan at work, on your own, or both. While the worksheet does not take into account your unique circumstances, it will give you an idea of how much to save each year and a clearer picture of your retirement goals. The sooner you start saving, the longer your savings have to grow.
As you fill out the worksheet, think about your plans including when you might retire, what savings you have, and how many years you hope to enjoy in retirement. Of course, your plans and circumstances may change, so update this worksheet periodically to reflect any changes.
Start by entering the number of years until you expect to retire. On the second line, enter your current annual salary – this is your total pay before taxes or other deductions. You can probably get this from your pay statement.
Next, enter the number of years you expect to live in retirement. People are living longer on average which means you could need retirement income for 30 years or more. Planning to live well into your 90s can help you have a secure retirement and avoid outliving your income.
Finally, if you have already started saving for retirement, enter the amount of your current retirement savings. The result is your target saving rate, or the percentage of your salary to save to reach your goal.
Example of Target Savings Rate Estimate
For example, if you expect to retire in 35 years, live for about 30 years in retirement, currently earn $50,000 a year, and have $2,000 saved for retirement, your target saving rate is 9.5%.
| Number of years until retirement |
35 |
| Current annual salary |
$50,000 |
| Number of years in retirement |
30 |
| Current savings |
$2,000 |
| Target saving rate |
9.5% |
What goes into the estimate
A 7 percent rate of return is used to keep it simple: remember investing involves risk, so investment returns, even assuming a diversified mix of stocks and bonds, go up and down and cannot be guaranteed. The worksheet, which uses a 3 percent inflation rate, increases your salary 3 percent each year but does not include any other increases.
The worksheet estimates how much savings you will need in addition to Social Security. On average, people need to replace about 80 percent of pre-retirement income for living in retirement. According to the Social Security Administration, Social Security retirement benefits replace about 40 percent of an average wage earner’s income after retiring. This leaves approximately 40 percent to be replaced by retirement savings.
In retirement, while your investments will continue to grow, the cost of retirement likely will go up every year due to inflation – that is, today’s dollars will buy less each year because the cost of living usually rises. The worksheet estimates how much savings you will need, taking into account the growth of your investments and inflation through your retirement, which could be 30 years or more. It also takes into account how much your current retirement savings will grow by the time you plan to retire. Keep in mind that this is an estimate and you may need more or less depending on your individual circumstances.
The target saving rate
The worksheet estimates your “target saving rate” or how much to save each year as a percentage of your salary. Saving this amount will help you reach your retirement goals.
The target rate includes any contributions your employer makes to a retirement savings plan for you, such as an employer matching contribution. If, for example, you are in a 401(k) plan in which you contribute 4 percent of your salary and your employer also contributes 4 percent, your saving rate would be 8 percent of your salary.
Remember that the worksheet only gives you a rough idea, a savings goal. Some may face higher expenses in retirement because of personal circumstances and choose to save more. Some may have other sources of income in retirement such as a defined benefit traditional pension or money from selling a home that would lower the target rate.
You can compare your results with what you are currently saving after you complete Worksheet 5.
If you are currently saving less, don’t be discouraged. The important thing is to start saving, even a small amount, and increase that amount when you can. Come back and update this worksheet from time to time to reflect changes and track your progress.
How do I get the total replacement rate at retirement?
The worksheet estimates how much retirement income you will need in addition to Social Security.
On average, people need to replace about 80 percent of pre-retirement income for living in retirement.
Initially, the worksheet used this 80 percent total value to get your target savings rate. However,
if you expect to have an unusually large or small amount of expenses in retirement, you may wish to
estimate your own rate. One way to do so is to fill out a copy of the expenses section of Worksheet 5
with your expected expenses after retirement (in today’s dollars). Total the expenses and divide by
your current annual salary to get a total replacement rate. Enter this percentage in the box;
however, the worksheet will only accept values from 70 to 95 percent.
How do I get the projected monthly Social Security retirement benefit?
The worksheet estimates how much Social Security retirement income you will receive. On average,
people receive about 40 percent of their pre-retirement income from Social Security. Initially,
the worksheet used this 40 percent value to estimate your Social Security benefit. For an average
80 percent total replacement rate, this leaves approximately 40 percent to be replaced by
retirement savings. However, you may wish to use a better estimate of your Social Security benefit.
You may obtain the amount of your monthly Social Security payment at full retirement age from the
upper right corner of the first page of Your Social Security Statement. You may view Your Social
Security Statement online anytime in your my Social Security account at https://www.ssa.gov/myaccount/.
(Note that registration is required at this SSA web site). Enter this monthly amount in the box.
