4 things you can do today to figure out if you're on track for retirement

  • Financial planner Mari Adam says you should take a personalized approach to saving for retirement. 
  • Your contributions will depend on your financial needs, when you start, and when you want to retire.
  • Decide how much you’ll need, how much you already have, and then build a roadmap for the rest. 
  • Visit Personal Finance Insider for more stories.

When it comes to saving for retirement, a general rule of thumb is to put away 10% to 15%  of your income each year. But that amount may not be suitable for everyone, especially if you’re starting out late, want to retire early, or have additional expenses, such as a dependent or two. 

Financial planner Mari Adam of Mercer Advisors says it’s important to have a retirement savings plan that’s catered to your specific needs, and the sooner you can get one, the better off you’ll be when you get to your retirement years. 

“One of the things I tell people is you really need a roadmap,” Adam says. “Imagine you’re trying to drive cross country and you have no phone, no maps, no nothing. And you have no idea where you’re going — that’s kind of what people are doing when they’re planning for retirement without a plan.”

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Adam shares four key things you should be doing, no matter your age, to figure out what steps you need to take to set yourself up for retirement. 

1. Figure out what you want in retirement

First off, you need to put some thought into what retirement means to you. The answer to this question will depend on your expenses, your current income, when you plan to retire, and your lifestyle. 

Some things to think about are whether you will still have a mortgage when you retire, or any big expenses such as a second property, vehicle payments, or even a dependent. Once you have a better idea of your personal needs, you may realize that following a general rule, such as tucking away 10% to 15%, may not be enough for you. 

“Ten percent is kind of the minimum; it could be much higher depending on when you start [and] what kind of Social Security you’re going to get, which is a function of how much money you made, how long you might live, how you invest. There are all these variables,” Adam says. “The 10% we use as a rule of thumb, but right now it’s the bare minimum I would say.”

2. Take inventory of your assets

Adam recommends taking inventory of your assets once a year or, at most, every five years. This will make staying on track easier, because if you’re doing something wrong, you can catch it sooner. 

“Just like everything else, it’s really easy to course correct when you’re off by a few feet, or a few yards, or a mile,” Adam says. 

She recommends using what she calls the “assets to income ratio,” which she shares on her blog, Charting Your Financial Future. It compares the value of your total assets to your annual income to help you figure out whether you have accumulated enough for retirement given your current age. 

Your assets would include your 401(k), IRAs, and other investment accounts. Do not include the value of equity in your home, unless you plan to sell it.

AgeRecommended ratio
Age 35Assets equal to 1-2 times your income
Age 45Assets equal to 3-4 times your income
Age 55Assets equal to 6-8 times your income
Age 65Assets equal to 10-12 times your income

This ratio is based on two common rules: The first, that you’ll only need 70% to 80% of your pre-retirement income after retiring since you will no longer be contributing to payroll taxes and employer-sponsored accounts. Second, it follows the 4% rule, which means if you only withdraw 4% of your total investments annually, you won’t run out of money. 

If your pre-retirement income is $100,000, then assets equal to 10 times that amount would be $1 million. At 4%, that would give you $40,000 annually, while Social Security covers the remainder. 

Alternatively, you can use a free online retirement calculator to help you determine how much you should be saving each month depending on a few variables, such as your age and income. 

3. Create a roadmap 

Once you know how much you need to save and you’ve taken inventory of your assets, you can create a roadmap that will help you close the gap between the two points. This is the part where you decide whether you have expenses that are eating away your earnings and if you can cut them down.

For example, if you have a home or vehicle payments that are taking up too much of your monthly income, it may be a good time to sell. Even reducing small bills like monthly streaming subscriptions or food delivery apps can make a big difference. Try to free up enough money to meet your monthly savings target. 

4. Figure out what tax-advantaged accounts you can contribute to

Depending on your income and employment situation, there will be different accounts you can contribute to. If you have access to an employer-sponsored 401(k), Adam recommends maxing that out. If you work for a nonprofit or government institution, then take advantage of your 403(b) or a 457(b).

If an employer-sponsored account is not an option, consider a Roth or traditional IRA as your next option. Once you have checked off those boxes, consider a regular brokerage account. 

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