How Much Should You Save for Retirement?

The Money Guy Show has long told listeners to save and invest 20 to 25 percent of their income. That number was always a rule of thumb, and the hosts knew it had warts. It works beautifully for a 20-year-old, but it is aspirational for most people, and if you actually pull it off at that age, you will probably end up with far more money than you need. The hosts have now done the math to back up their advice with a new downloadable resource that shows, by age and retirement goal, what savings rate actually gets you there.

The core assumption set is straightforward. For a 20-year-old investor, the model assumes a 10 percent rate of return, which declines by one-tenth of a percentage point each year (9.9 percent, 9.8 percent, and so on). Inflation is pegged at 3 percent, matching the average since 1980. Wages rise with inflation so that buying power stays constant. The portfolio needs to support a 4 percent withdrawal rate, and the goal is to replace 80 percent of pre-retirement income. The hosts acknowledge that expenses, not income, are the right metric at retirement, but income is a consistent baseline for a broad audience decades away from stopping work.