Figuring out how much you should save for retirement can seem more like an art than a science, especially if you’re unclear about critical planning variables. That’s why having a benchmark for the amount to save by age can be helpful. 

On this recent episode of my long-standing finance podcast, Money Girl we went over this topic in depth. Feel free to read on to learn what we covered or listen in the player at the top of this article. We cover typical sources for retirement income, how much you’ll need, the best investment accounts to use, and savings goals by age.

Whether you’re just getting started or have been investing for decades, keep listening to ensure your retirement is on track.

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How to plan your retirement income

Having a secure retirement means you can passively generate enough income to preserve your desired standard of living without having to earn it from a job or business. After you retire, your spending will probably be similar to your current costs for food, housing, clothes, and entertainment. 

Some retirees choose to downsize to a less expensive home or cut expenses like transportation. But some of your future costs, such as healthcare, hobbies, and travel, will likely increase. 

A typical retirement goal is to create income equal to 70% or 80% of your pre-retirement income. For instance, if you earn $100,000 per year on average in the years leading up to retirement, you might need a minimum of $70,000 to enjoy a similar lifestyle. But if you don’t intend to reduce your standard of living or expect higher expenses in the future, you might plan for more than 100% of your pre-retirement income. 

Once you know how your retirement spending could stack up to your current budget, you can quickly determine how much you need to save. I’ll explain how to do that in a moment.

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The role of Social Security retirement benefits

A significant factor in how much you’ll need to save for retirement may be your future income from Social Security retirement benefits. Social Security is a mandatory U.S. federal program that provides financial assistance to qualifying citizens who are retired, disabled, or survive a relative who received benefits. 

You’re eligible for Social Security retirement benefits after you work for at least 40 quarters or ten years. The program gets funded from payroll and self-employment (SE) taxes you pay during your career. However, many state and local government workers—such as teachers, police officers, and firefighters—don’t pay into Social Security and usually get a pension instead of Social Security retirement benefits.

How much retirement income you receive is based on the average of your highest 35 years of earnings. If you worked fewer than 35 years, the missing years get counted as $0 income, which brings down your average. And if you worked more, only your highest-earning years are considered.

The program taxes earnings up to an annual threshold, which has increased over time. For 2023, the Social Security tax for employees is 6.2% of earnings up to $160,200, known as the wage base. Your employer pays an additional 6.2% on your behalf, adding up to a total annual tax of 12.4%. 

If you’re self-employed, you pay 12.4% into the Social Security system by paying the self-employment tax up to the annual income threshold. Remember that any earnings that don’t have Social Security and Medicare taxes withheld or business income you don’t pay self-employment taxes on won’t get factored into your future benefits.

Laura reviews how the Social Security retirement benefit works, including how you qualify, how much you receive, and six common myths. Listen to that episode.

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How to factor in Social Security retirement income

The Social Security retirement benefit you receive varies widely depending on your age when you begin taking it. Everyone has a “full retirement age” or FRA when you can first claim full or unreduced benefits. If you were born between 1937 and 1959, your FRA is 66. But if you were born in 1960 or later, your FRA is 67. 

However, no matter when you were born, you can elect to take early retirement benefits starting at age 62. If you retire before your FRA, your benefits get permanently reduced. And when you delay benefits past your FRA, they increase 8% annually to age 70. 

So, if you’re in good health and can continue working, or have other income sources, waiting to claim retireement benefits is an easy way to boost your monthly income for the rest of your life. 

According to the Social Security Administration, if you turn 62 in 2023 and begin early retirement, your benefit would be about 30% lower than if you started at your FRA of 67. And if you’re wondering what the maximum retirement could be, it was about $4,500 a month in 2022.

There are many factors to consider when deciding when to start retirement benefits, such as your income sources, life expectancy, and spouse’s situation. So always get personalized advice from a financial advisor for help making the best decision.

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How much Social Security retirement income do you get?

Since how much you’ll receive in Social Security benefits is a huge factor in how much you should save for retirement, tracking and verifying it is essential. If you haven’t already set up your online account, visit SSA to sign up, check your earnings history, and see your estimated future retirement income and other benefits. 

It’s a good idea to regularly review your reported earnings for errors since mistakes could keep you from getting all the benefits you’re entitled to. 

If you’re worried that Social Security won’t be around by the time you retire, that’s not likely to happen. While the reserve fund is getting depleted, policy changes—such as increasing the wage base or the payroll and self-employment tax rate—can raise revenue to keep the program healthy.

Before I cover the retirement savings you should have by age, let’s review eight factors that play huge roles in how much you’ll need. 

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1. Your retirement age

This is critical because the earlier you need income, the more you must save. Most people use the age they’ll start receiving Social Security as a default. But if you accumulate a large nest egg, you can retire earlier.

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2. Your existing savings

This plays a significant role in how big your nest egg will be at retirement. The sooner you begin saving, the more compounding interest works in your favor to grow your balance.  

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3. Your average pre-retirement investment return

This determines how quickly your investments can grow. For example, investing $200 monthly for 40 years at a 3% return would grow to $185,000. But if you get an 8% return, you’d have $700,000. That’s where those investment fees and your return on investment come into play.

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4. Your post-retirement investment return

This is also crucial because you must get a return from a portion of your savings while keeping it safe in low-risk investments once you’re retired.

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5. Your future Social Security

Social security or other income, such as a pension, is critical for accurate retirement planning. Social Security may replace 30% of your pre-retirement income if you’re a typical worker.

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6. Inflation

Inflation causes prices to rise, making your retirement income less valuable. It’s good to know that Social Security retirement benefits get adjusted for inflation as the cost of living increases; however, they could lag significantly.

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7. Your withdrawal rate

Your withdrawal rate is how much money you take out of your nest egg each year. Many people believe they can live on less than their pre-retirement income. However, if you dream of lavish trips, live in an expensive area, or require costly medical care, you may need more income in retirement.

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8. Your longevity

Your longevity is the biggest unknown when it comes to planning for retirement. If you’re relatively healthy at full retirement, statistics show you’ll live well into your 80s. If you have a good family health history and take care of yourself, you could need retirement income into your 90s.

With inflation at an all-time high, you might be feeling a strain on your finances. A wise way to fight back is using some clever ways to cut costs—how about 25 of them? Laura Adams explains on episode 739of the finance podcast, Money Girl

This article originally appeared on QuickandDirtyTips.com and was syndicated by MediaFeed.org.

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