Net Gains: How Much Should I be Saving?

For a 35 year old earning $40,000 a year, the guidelines recommend a target savings rate of 12.2 percent, assuming no accumulated savings. But for each $10,000 already saved, the target rate can be lowered by .86 percent. So $20,000 already saved for retirement would yield a target rate of 10.48 percent.

A 45 year old earning $80,000 a year and no accumulated savings would need to set aside 24 percent of income for retirement, the guidelines suggest. For each $10,000 already saved, a reduction of .45 percent could be taken. Thus, a $100,000 retirement portfolio under this scenario would result in a target rate of 19.5 percent and a $200,000 portfolio a 15-percent target. The accompanying table shows how savings rates differ with age and income.

Click Here to See How Much You Should Be Saving

In all cases, an individual's target rate can be lowered by an employer's contribution rate to a retirement savings plan. For example, a 3-percent company contribution to a 401(k) plan would lower the employee's target savings rate by that amount.

In addition to setting target savings rates, the guidelines set benchmarks for how much should be saved by certain ages -- again varying by income -- and how much should be accumulated in total by retirement.

In this column, it is impossible to provide every detail of the guidelines, but the original study can be found at Journal of Financial Planning Web site.

Also, Morningstar – which owns Ibbotson Associates -- has developed an online calculator based on these guidelines.

Check them out, and you'll see the importance of saving early and often.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning ( in Falmouth, Mass. Before establishing the firm, he worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, which is dedicated to providing financial planning and advice to clients on an hourly, as-needed basis. Contact David at

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