I just received by Winter 2007 USAA Magazine. On pg 13 they reproduce a chart that originally appeared in The Journal of Financial Planning in April 2007. It presents the savings rate that you need to set asside to retire at either 60% or 80% of your income(though the assumed income level is not given nor is it necessarily saved in a tax deferred or tax free investment .)
Here’s the basic idea. If you are 35, haven’t saved anything for retirement, and aren’t planning to take a military retirement, you’ll need to save 16.4% of your income until you retire (at age 65) to replace 80% of your $40,000 example income. If you wait 5 more years that number jumps to 21.6%, and by age 50, it soars to 50%.
The chart does two things. First, it gives you an idea of what percentage of income you should strive to set aside. More importantly, however, it shows you why it’s so important to start saving early.
“National Savings Rate Guidelines for Individuals,” The Journal of Financial Planning, April 2007, Vol. 20, No. 4.