"How much should I save for retirement?"  That's a question I get asked a lot.  So here are a few of my thoughts on the matter. 

You should think in terms of saving a percentage of your gross income for retirement rather than a specific dollar amount.  Doing so will cause a few positive things to happen.  

First, the dollar amount that you contribute to your 401K, 403B, or other retirement savings plan will increase over time as your income grows.  For example, say you make $75,000 now.  If you save 10% of your income, you'll be putting away $7,500 toward retirement over the course of the year.  Now, fast forward five years.  Let's say you're making $100,000 a year.  At the same 10% savings rate and your new salary level, you'll contribute $10,000 to your retirement plan.  Excellent!  

Second, as my grandmother used to say, you'll learn to live within your means.  In fact, you'll learn to live below your means, which is what saving for retirement causes you to do.  If you're saving 10% of your income, then you're only living on 90%, which is a great habit to cultivate.  It's a great habit because it requires you to control your appetite for spending.  And once you're in the habit of controlled spending, it will likely stay with you for the rest of your life, right on through retirement.  How perfect!  That's exactly where you want to be when you are no longer in the work-a-day world and are living off of your retirement savings.  

You should keep this second point in mind when you consider the impact of your employer's contribution on your chosen retirement savings percentage.  You might think that you can save less if  your employer contributes, say, a 4% match to your 401K plan.  But if you lower your savings rate by the amount that your employer contributes, you probably won't limit your spending as much as you should.  So the benefit of your controlled spending habit will be, well, less beneficial.  

So what percentage of gross income is the right amount to save for retirement.  Is it 10%?  12%?  15%?  20%?  Actually, there's no bullet-proof answer to this question.  Much depends on your current age, your current level of retirement savings, when you want to retire, what type of life you want to lead in retirement, etc.  For younger people just starting out (think mid to late 20's), 10% might be enough.  But even people in their 20's and 30's may want to consider saving more.  Why?  Because you never know how your life is going to play out.  You may plan on saving for retirement until age 65, but will you still be in good health (and employed) in your late 50's and early 60's?  Many people aren't.  And will you still be in a high paying job later in your working years?  Again, many people aren't, either because they're forced out of their job or because, by their mid-50's, they've had all they can take of a high stress work environment and they choose to check out on their own.  Better to front load your working years with a higher retirement savings percentage early on than to plan on contributing the same (lower) percentage until age 65.  

What if you are in your mid-40's to early 60's?  It might be a good time to get an objective evaluation of how well positioned you are for retirement from a fee only financial planner.  Your situation is likely more complex and he or she can help you determine where you stand and what changes you need to make to reach your retirement goals.  

Greg Pierce is a Fee Only financial planner located in St. Louis, MO, who specializes in helping people make smart decisions in retirement planning, college education planning, tax planning, investments and more.