How To Save More For Retirement If You Don’t Make Much Money

Want to save more for retirement? Good. People are not saving enough while working, which will hurt them when they are old.

  • Save $180,000 by age 30
  • Save $500,000 by age 40
  • Save $1 million by age 50
  • Save $2 million by age 60

These are the rough estimates for what I think everybody needs to save for retirement to have a reasonable attempt at a comfortable retirement. Of course these figures aren't set in stone and there are many other things you can do to help your retirement quest. I advise keeping an open mind and using these figures as targets.

If you read the comments from my “401K amount by age” article, you will notice that those in their mid-30s and below tend to disagree with these amounts, while those older generally agree, verify, and accept.

Save More For Retirement Early And Make It A Habit

I don't know why younger folks aren't willing to follow along. It's often times just rebel and justify why they aren't saving.  “Live life!“, they say.  True, but who says you can't live life while saving?  

The easiest way to learn, is to listen to an older person who has gone through what you will go through. Perhaps it's immaturity, or the way things are where every generation needs to question the next generation and the status quo.

There's really no mystery to money. The more you have, the more you can make.  It's all about building the NUT large enough so that when you make a fortuitous 10% return, you're pulling in an extra $50,000-$100,000 on your $500,000-$1 million portfolio.  Get going so you can have more significant returns.

If you aren't on retirement track based on my 401k age chart and disagree with my figures, just do the math YOURSELF and see whether you've saved enough to retire on. I don't think you're going to like the results.

There's one question that kept coming up over and over again, and that's, “How can I save so much, if I don't make so much?” It's a fair question that needs addressing.

One commenter mentioned my table must be of “California Currency”, which made me chuckle. The problem of not making enough and therefore not being able to save enough is an honest problem which I'd like to address via a change in mindset and a chart.


Here are the various ways to save more for retirement, especially if you don't make much.

1) If you don't find it painful saving money, you're not saving enough.

If you're not sweating at the gym and your muscles don't feel sore the next day, you might as well go eat a double cheeseburger with a milkshake and fries because you're just wasting your time. The same goes with saving.

Since you're in the lower income bracket, savings is not supposed to be easy. If you're not feeling the disposable income pinch of putting away, 20%, 25%, 35%, 50% of your income into your 401K, IRA, or savings account, you simply are not saving enough.

You need to feel the pain, so you are forced to change your spending habits. Here's how much I think you should have accumulated by age.

2) Recognize that you are not rich.

For whatever reason, you do not make a lot of money. It could be by choice (messed up in school, less lucrative field) or misfortune (laid off, accident, starting over). Once you recognize you are of lower income, you've got to come to grips with the fact that retirement is not going to be filled with milk and cookies.  

Think tasty water and crackers instead. You're going to be working longer and harder than others. You've got to save more than your wealthier friends simply because you have less.  

If you only make $50,000 a year, what on earth are you doing driving a $25,000 car? That's 50% of your gross income, and around 65% of your net income!

If you guys only earn a combined $70,000 a year and have a child, what are you doing living in a 3 bedroom apartment that costs $2,500+ a month? Downsize to a two bedroom apartment and save the difference. A family of four in Tokyo live in 600 square foot, 2 bedroom apartments!  Don't act rich, because you are not.

3) Do the math to save more for retirement.

One commenter asked how he can put away $17,000 a year in his 401K and then another $5,000 in his traditional IRA if he “only” makes $70,000 a year. I told him to do the math. He did the math, and he did it all wrong!  This is what he calculated:

70k – 17k (401K) = 53k —> Fine. 
53k * 0.4 (taxes)= 31.8k —> 40% tax rate on a $53,000 income?
31.8k * 0.2 (after tax) =25.4k —> What's this extra 20% tax?
25.4k-5k (Roth) = 20.4k —> Why contribute to a Roth after tax, when you can contribute to a traditional IRA pre-tax?
20.4k/12 = 1.7k per month. —-> Wrong.  Should be around $35,500 net = $2,960/month, 74% more than what is stated.

The effective tax rate on a $53,000 income is around 17%. Add on 9% state tax, and at most he's around 26%. His Roth deduction is fine, if he doesn't want to contribute $5,000 in a traditional pre-tax.

However, I always recommend paying less taxes than more. I am shocked how little people understand what their effective tax rates are, and the difference between pre-tax and post-tax contribution. Do the math people. You have more than you think!

4) The new normal is a lower rate of return.  

Anybody telling you to input more than a 5% constant rate of return on your investments is being too aggressive. The days of 8%+ portfolio returns are gone in an environment of 4% long-term treasury yields. 

There is an inextricable link to fixed income and equities, and baking in more than a 2X return over the risk-free rate is a stretch. We can increase our assumptions once we see an uptick in inflation, corporate earnings, and risk appetite, but not now.

5) Realize that making more money is a choice, especially if you live in a developed country. 

According to one researcher, it only takes around $34,000 to be in the top 1% of world income earners. Meanwhile, $33,000 so happens to be the middle line between the top 50% and bottom 50% of US income earners. You have a choice to work more than 40 hours a week to get ahead.

You have a choice to have as many or as little kids as you wish. Start a business and make extra income on the side if you want to. Get in before everyone and leave last, while proposing new profitable ideas for your company.

You don't have to be a top income earner, you just have to make enough to be happy and save.  We live in a free country, not North Korea.

6) Accept bigger government. 

Massive government spending is now the norm, especially post pandemic. Social welfare programs, unemployment insurance, affordable healthcare, and low taxes continue for the middle class.  

By raising taxes on “the rich”, the current administration is effectively redistributing wealth to lower income individuals through government programs.

Republicans are more focused on cutting spending to balance the budget, and not raising taxes given our system already has a progressive structure already. Both systems have its merits and flaws, but if you are making under $200,000 and your retirement accounts are light, from a financial point of view, you're better off voting for the incumbent. At least you know what you're getting.

Now that you've changed your mental outlook, here's a proposed savings chart I developed to slowly turn the screws so that you get to your retirement goals.  Here are some following assumptions:

How much savings you should have by age

Assumptions for the chart:

* No matter what your income level, you are saving some money. Develop the savings habit early and always.

* Your goal is to ultimately save at least 20X your annual expenses to achieve financial independence. If you can get there before 65, great! The sooner the better.

* It's important to keep your rate of spending slower than your income and savings growth.  Don't let lifestyle inflation derail your plans.

* After you have maxed out your 401K, save an additional 20% or more in your after-tax investment accounts. Having liquidity is important if you want to retire sooner.

* If the amount of money you're saving each month doesn't hurt, you're not saving enough!


401k savings targets by age

The good thing about not making much money, is that you are used to living on not much money, and therefore you don't need much money to retire on!  With the above assumptions and chart, I hope I've provided a guide for those who have wondered how they can save so much if they don't earn much at all.

Savings should be an automatic way of life. Always save money before you pay yourself. Sure, legislation such as the SECURE 2.0 Act will help people save more. But don't depend on the government. This way, you will always operate in the confines of your disposable income.

Increasing How Much You Want To Save for Retirement Is A Choice

Another good thing about retirement is that when you are retired, you do not have to save for retirement. That 5-35% savings rate I discuss in my charts disappears, making you suddenly that much richer.  

Meanwhile, you've hopefully paid off all your debts, and can live in your home mortgage-free for the rest of your life.  But, even if you still have a mortgage, or are renter, with the above system, you should still have enough money to support you until the end.

Please try not to make excuses for why you cannot save even just 5-10% of your pre-tax income in your 401(k). I lived in super expensive Manhattan on $40,000 a year and managed to put away $15,000 into my 401K. $40,000 in Manhattan is like $35,000 in San Francisco, and only $25,000 in the MidWest. Financial independence on a modest income is possible!

You just have to make a choice whether you want to build a safety net for your retirement or not. Hopefully you will continue to make more money the longer you work, making saving more money easier and easier. You'll wake up 10 years from now and amaze at how much money you've managed to accumulate.

It's really up to you. Save more for retirement and live the good life when you're older or not. See you at the beach!

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221 thoughts on “How To Save More For Retirement If You Don’t Make Much Money”

  1. Hey Sam,

    My employer does not have a 401K. I’m maxing out the traditional IRA at this point ($5000 already saved in it for this year). I put additional savings in various places – mainly stocks i.e. Betterment and the like. I’m getting started on Fundrise. Any other places I need to try? The lack of 401K is killing me from tax purposes or so it seems.

  2. call your 401k provider and ask them if they have self-directed options? My provider Voya allows you to control 80% of your account through TD Ameritade. I tend to day trade or swing trade that part of my retirement account, or move the funds to cash, during times when the market is dropping.

  3. Terry Pratt

    Low earnings inherently hinder wealth building in ways that don’t apply to most of us.

    For starters, owning a home typically requires greater initial financial resources than a low earner has, although some are able to acquire ownership without purchase (e.g. inheritance or gift from family). Once you acquire ownership, it is much easier to save money and build wealth because you now have escaped rent inflation, stabilized your housing expense long-term, and captured for yourself all future appreciation and principal reduction.

    Since most of us start out not owning a home, low earners generally must pay market rent – unless, again, we have some family advantage not available to others.

    For many low earners, having to pay that market rent month after month gets in the way of keeping spending growth lower than income growth; I live in a city where rents have recently been increasing 5-15 percent per year. Rent inflation for many means spending growth exceeds income growth where the only lifestyle inflation accrues to your landlord. (Nice gig if you can get it!)

  4. Marcel Jara

    Hello Financial Samurai,

    My name is Marcel Jara and I am 19 years old. I recently moved out of my parents house to move closer to school NC State. Through seeing the struggle that my mom went through in my earlier years I made it into an inspiration and motivation for myself to insure my financial future so that neither I nor my children in the future would have to go through the same difficult situations that I did. I am a Human Biology student but have always had a focus towards money and financial independence. I made my first investment to my future when I was in 10th grade with money that I worked hard for and had accumulated overtime by putting 1,000 in my first roth IRA account. Ever since that day I have been saving the majority of my minimal income and investing it as efficiently and effectively as possible. I make 11 an hour working at my parents food truck. Seeing my Dad 55, working countless hours on his business made it clear to me that I did not want to spend the rest of my life working especially at his age although I know that 55 if not old at all but I know that i want to reach financial independence sooner.

    I have been focused on saving and investing as much as my finances allow me to even if it is just 20$. This has allowed me to have now about 5,000 dollars in investments distributed through Acorns, Betterment, Robinhood, Stash Invest, Roth IRA and today for the first time I invested 1,000 into Fund Rise ereit. I have made each deposit with a lot of hard work and I know that almost everyone deters me from investing my money especially at this age and also considering that I have only a couple hundred dollars in my bank account while still having to pay for my rent and all expenses but what I have pushed myself to do is to deposit about 500$ a month with the little money I have. I have been smart with my money by rarely ever eating out or doing other things that almost everyone my age is doing and wasting their money on. I know you are an extremely busy individual and that your time is way more valuable then spending time mentoring me but that is what I would like to ask. I would like more information on what I should be doing with such a low income while investing and what you recommend would be the best way to invest my money in a way that I can truly build that residual income. I have always been focused to start as early as I can investing because I know the power of compounding although I just have 5,000 invested now I know if I stick to it I can reach financial security in the long run but I want to educate myself more on how I can get financial security with a smaller time horizon such as in the next 10 years because I end goal is to reach financial independence by 30 which is a big aspiration but I know with the right tools and mentoring I can reach it and help others do the same as you have been doing:) Thank you very much for your time!

  5. I am 23 with about $70000 invested in a managed mutual fund with a fee of .08% I make about $3000 a month with another $500-1000 from online sales on the side. Do you think I am on a good path to savings? My aim is to reach $100000 before I hit 24 and $500000 before I turn 30.

  6. Hi Sam! Just started reading your blog and I am inspired to get on this path. I just took a job that I’m excited about, but they don’t offer a 401k for the first year of employment. Are there other ways to save pre-tax income that could be beneficial in my specific circumstance? Thanks a bunch for any advice you can offer.

    1. Is there an IRA option where you can contribute $5,500 tax free? If so, do that. If not, then diligently save in an after tax brokerage account like Wealthfront, which charges no fees for the first $15K under management and only 0.25% after. Digital wealth advisors are very good and inexpensive nowadays. I wouldn’t mess around with trying to pick stocks unless you are a professional.

  7. Over 50, spouse, two teenagers, a 2011 bankruptcy on a combinde family income that’s ~$70k a year. After rent, utilities, student loan pmt and food there’s nothing left for car repairs (they’re 20 yrs old) or kids clothes or medical bills. Note the “or”. There’s never enough to even cover all the basics, we’re subsidized by spouse’s parents via forgiven utilities money & they pay for our phones. No life insurance, no college savings for kids, no money to fix the teeth falling out of my head (can’t afford the co-pays.) Every time I even attempt to create an emergency savings, two or three juicy emergencies swallow it all and send us begging for the shortfall. We have about $65k in TRS3 retirement acct and no room to add to beyond unless we stop eating or learn to live without cars in an area w/o public transport. What would you do if you were us? No money to move, no money for school, make too much to qualify for tuition assist, can’t afford to fix one of the cars now. I’m supposed to worry about retirement when I can’t buy my kids shoes? The privileged basis of our system is breathtaking, no?

    So, my question to your positive-attitude-wins-out is what would you do in our shoes to be able to eat and cover the basics now (not happening currently) AND save for retirement? Only way to scrimp further is to live in our dead minivan. One of us works a job that’s about 60 hrs a week – schoolteacher, and the other works two jobs totaling about the same # of hours. No benefits at job(s) or better options in the area for the two job worker. If we pick up stakes and try elsewhere we lose all benefits and stability from teacher tenure. Earn way too much to qualify for assistance anywhere, but too little to do the responsible.

  8. Great post, especially about the part on lifestyle inflation.

    It’s amazing how far in debt people will go for shinier “stuff”. I know in NYC, there was a controversy after some high end store discriminated against a 19 year old black kid, assuming he was using a fake debit card because there was “no way” he could afford that stuff. Obviously making assumptions based on race is a bad thing, but I noticed when I followed the story that what blew so many people away was that this kid–with no income to speak of, as far as I know–was buying $300 sneakers or whatever it was that the staff thought he was stealing.

    I’ve worked with a teller a few years ago that leased a very expensive car. I forgot what type. It was nice, but on a teller salary? He lived a couple blocks away from me, and I walked to work everyday. I didn’t think anything of it at the time, but now it blows me away that we work so hard for our money, only to throw it away and put ourselves in debt to someone else for shinier “stuff”.

    ARB–Angry Retail Banker

  9. No need to worry about retirement. This is all coming to an end. You may want to read the good book.we are in later Days. Our father is coming to reastablish his kingdom here.No need to worry .May the spirit of the Lord bring peace to us all.

  10. Pingback: How To Retire Early And Never Have To Work Again | Financial Samurai

  11. Sam, I’m an avid reader of your writing and I have used several of your suggestions. I’ll be candid in admitting that I use your suggestions like commandments to filter my spending urges. “What would Sam do?”
    In your retirement savings guideline by age, I was wondering whether you are netting out savings used for buying a home, paying off student loans, bringing up kids, etc. Just so you know, I live in Brooklyn, NY, and I consider myself, for all practical purposes, poor. By your standards, it would seem to me that you have to be earning upwards of $250,000 from a rather young age to hit these targets? Am I missing something here? I would really like to get a perspective here, before I jump off the Brooklyn Bridge in total despair! (just kidding but you know what I mean…)
    Many thanks!

    1. Hi SB,

      Good question! I think you can consider paying off debt, saving for a down payment, paying for tuition etc as part of the savings number b/c after all, what is savings for, but to have for security and spend on life’s most important things!

      I just got back from Asia and saw a lot of poverty again in Cambodia. As a result, I’ve turned my hustle barometer to OVERDRIVE and have been testing out being an Uber driver for the past week. So far, so good as I’m grossing $32/hour and netting $24/hour after commission and taxes. Now, whenever I plan to buy something, I think to myself, how long must I drive to afford it!

      There’s something fun and magical being able to make money anytime within minutes. You should check out driving for Uber if you want to make more and have a car. I think they are giving a $250 bonus for drivers after their 20th passenger.

      1. Thank you Sam. That was helpful. I’ll just keep at it and see where I land when I retire. I intend to move to a little town in the Himalayas, when I do, which hopefully will be less expensive than NYC, but you never know!
        Yes, I have been thinking about driving for Uber. I don’t own a car though – it’s just a hassle to maintain it without a “critical mass” of usage. But if I can make that depreciating asset into a cash-flowing one, then I would even buy a used car to drive for Uber.
        Keep the hustle going Sam. We need it more than you know!

  12. Hey there,
    By the time I’m 40, I’ll be in the “low end” of your spectrum for retirement (maybe a few thousand dollars added to that). In your view, is that low-end still acceptable for retirement? Are you saying that $300K would be in the low-end of the acceptable range for retiring comfortably?

  13. Can you do saving plan if you do not have a Company 401k and match. If you make over 6 figures where do you put your money would you do a 18k max for a standard IRA?

    1. Im in the same boat. I would open up a Sole Proprietorship business and then a Solo 401k. You pay into it and “your company” meaning you pays into it as well. That way you are getting tax deductions on both ends. I would first max out your Roth IRA and then max out your Solo 401k. That should give you a good 25-35,000 in deductions. If you can save more then look into a high yield savings account or put money into ETFs and index funds (only if you plan to keep it in till retirement). I work as a 1099 and I do these things.

      Standard IRA in 2019 I believe is $6,500 max. Solo 401k is 19k (i think) and you can match yourself up to that amount as well.

      All these are tax deductible.

  14. “Realize that making more money is a choice, especially if you live in a developed country.”

    So where did you get your free job? Because most of us are working our asses off – we are smart, hard-working and do everything right but even so, no one wants to hire people.

    People get laid off because some 80 year old dude who won’t give up his job decides to take their spot. Employers are lazy and entitled and expect employees to have years of experience for entry level positions because they don’t want to spend any time training them. Some people have mental illness that isn’t taken care of by their community’s doctors and organizations. Some people have no friends and therefore no contacts to help them get into the jobs.

    It’s not THAT easy to even GET a job, let alone get one that pays above minimum wage. And people who say “keep applying”: Towns and living areas have a finite amount of companies that are hiring and compatible with the particular employee. If they all turn the person down, they’re out of luck. And sometimes a person could have made a mistake in their past that prevents them from getting hired, for example having a criminal record. What if you don’t even have money or a home to enable you to get around and apply for jobs? Spend your life applying for welfare cheques that don’t come through? Or take out another loan and get yourself more in debt? Stay in school forever?

    Even if you are privileged enough to have had the finances and living situation required to get a post-secondary education (even in “developed countries”, this is often not possible), you still struggle to find a job at McDonald’s. But it’s easy to get a job if you’re 50 and built up plenty of experience and contacts when they were handed out like pamphlets to anyone who said they would work hard, and have settled into a position with upward mobility.

    YOU can say that making money is a “choice”, because for you, it is. (To be fair, I am making an assumption here. Maybe you are poor or job-impaired. But in that case, you shouldn’t have such an attitude).

    And can we stop with the tired, childish accusations that younger people don’t want to work hard or suffer? Yes, we SHOULD be able to live life. God forbid we enjoy ourselves before we die. If you think it’s entitled to forgo savings in favour of not being depressed: There’s no joy in living if you are only spending your money on a future self that may not even be alive. And if you’re young and poor, the only “choice” is how to spend the measly $50 that you have to yourself for the entire month – put it in savings, or buy yourself something you’ve been wanting for months but couldn’t afford. So I think plenty of us have had enough “pain” and are going to be staying away from the gym for a while so we can heal.

    1. To answer your question; I got my first job after 55 interviews and 6 rounds after I was the only one to get on the bus from my college at 6am to go to DC for a finance job fair.

      My second job was after I decided to make the move to SF after entertaining a headhunter,

      My final job was created by myself by starting this site and writing consistently for 6 years, 3-4 posts a week.

      I’m lucky. I also try very, very hard and will frequently work 70 hour weeks.

      Please share your situation Eg age, occupation, etc. I strongly believe half the battle is having that positive mindset.

      1. Terry Pratt

        Just curious, how might one have and maintain a positive mindset when living in a miserable environment?

        I’ve been renting rooms in overcrowded houses (8 people in a 3BR, 1BA claustrophobic house), with drunks, druggies, growers, dealers, sex offenders, and SSI recipients.

  15. For evermore!! I was trying to educate myself a bit and found I don’t even speak the language. It’s like trying to read computer lingo when your experience is on an IBM select III. Really, does everybody else understand this? I must be a total idiot. A poor one; that explains a lot, eh?

    1. Hi, if you want to learn the language go to ameritrade website they have free training on investment and also investopedia that can help you a lot with the definitions etc.

  16. Thank your for the re-emphasis on saving more now while we’re young. I’ve been working now at 70k for two years and only the start of May this year, have I been maximizing my 401k per paycheck. Looking forward to the start of next year where I will be maximizing it to the fullest!

    By the way, I’d like some updates on your P2P investing. How has your performance been since the start and at what percentage of overall portfolio would you keep at? Right now, I’m at 10%.

  17. You forgot an important aspect in your “why you don’t have enough money” list: medical issues and lack of decent, affordable health insurance (meaning a plan that costs less than $500+ per person per month and comes with a deductible that’s less than $3k).

      1. i UNDERSTAND GOOD ARTICLE . I get what Conny says. Although OBuma care. Many small to medium sized corps adjust to this and some take penalty hits as they are harsh but still not harsh that they make decreases and changes to their employees plans. So yes if you make nothing Medicaid. But the working poor have to buy something OBAMA care not cheap for a family of 3 or 4. And if like conny says has medical issues that if you made nothing medicaid would pay 100%. You a family and make 35,000 with 20 % deductibles for surgery you are heading towards bankrupt or 401K early withdrawl. So in theory yes. But the sad reality for many working class folks and familys this is more the reality that noneone has good answers for. Many familys live paycheck to paycheck and never expected to see a huge recession and be out of worjk that long even those with degrees who had worked consistany for many years bought house had a family planned on emergencys but not sunamis. Take care .

  18. I wanted to point out what I think is a bit of vaugeness in one of your examples. The example of the 70k income, that chooses roth instead of traditional. You question this choice as strange, however its common for 401k participants to make this choice. I think you are correct in this specific example that the MAGI would be less than 59k (53 in this example assuming no other sources apply) but at 59k (not too far away) the ability to deduct a IRA contribution for someone participating in a 401k plan (as this person is) — is limited. And goes away entirely by 69k. If you can’t deduct your contributions to IRA, you’re better off using Roth. You didn’t say anything incorrect, per se — but by not talking about it you make it sound like the traditional is always preferable in these circumstances, when infact, there are some limits you need to pay attention to.

  19. Hi Sam,

    I found your site by accident while surfing at 3:00 am (not sleeping because of a toothache); and while reading your followers’ replies, I zeroed in on Jack R’s reply of February 13, 2014. I, too, have the same story to tell… But my desire is that it will be looked at [by your readers] as a story about ‘hope and what happens, when you never give up’.

    I will be 64 in November of 2014 and here’s my story:

    Back in our ‘Economic Abyssal Plunge of 2008’, I lost everything, and I mean everything. My business, house, car, life savings, credit rating – all gone. The only four things I had left, were… My faith in God, my beloved wife of 30+ years, my dignity and my refusal to give up (So I was still rich!).

    The last 6 years have been the rockiest road in my life… unemployment for almost 3 years, my wife being so seriously ill (twice), she almost died both times and also having to move our lives from Southern New Mexico to Northern Colorado, after having originally moved from the North East.

    I never thought at 61, that I was even remotely employable. BUT, faith and tenacity reigns! I sent out over 400 resumes and filled out countless applications, looking for almost any kind of work and anyone that would hire me. By grace, I wound up being employed with a large healthcare organization, all based on (are you ready for this?) my experience in the U.S. Army over 40+ years ago?!

    With my current job, I have gone full circle in my business career; I started out on the front line, eventually went into management, then stepped outside corporate, became self-employed,owning 2 businesses for over 20 years (broker/builder)… And now, here I am close to retirement, working on the front line again, this time in healthcare (I work in the ER of our local hospital). My sweet wife also works for the same organization too!

    With the huge medical bills almost gone, we have been able to put money into our 401K’s and are maximizing our 403b’s. No, we will not have much money to work with in the end, but we won’t be on the street either. I plan on working until I’m 67 or 68, because I’m in good health (Social Security will be deferred until then & both our monthly SS checks will be of decent amounts)… I even have plans to eventually start up a special wood crafting design business with my much younger brother in law.

    The moral of this little story… Don’t ever stop trying, because it is NEVER too late. Have faith in a higher power and yourself, love your spouse and your family… don’t ever stop looking for the best job possible (one that make you happy), save or invest what you can, when you can… and don’t ever, ever stop having fun in life!

    I know this is on the long side and it’s not all about personal finance but it IS a true story; and like you, I also like to write! Thank you for allowing me to share it with your readers… It hope it inspires someone who might be on the ‘edge’ like I was!

    Best wishes for continued success to you and your readers!

    Jim Nic

    1. Jim,

      I love your story and your never die attitude! WAY TO GO! I have been hearing more and more stories about people who lost it all and had to start over nearing retirement age 60-65. I was at the local Bed, Bath, and Beyond store the other day when a really nice man, about 68 years old helped me out with some stools I wanted. I didn’t have the 20% off coupons, but he said not to worry, that he’d take care of me with all four stools.

      He said his partner died earlier, and he lost his business after 25 years. I asked if hopefully he was OK? And he said, “I’m OK. I don’t live in a house anymore, but a small apartment. But each day is a blessing.”

      He looked quite ill, with spots all over his body. It is scary how we can work so hard, and exogenous variables can just crush us so easily.

      Thank you for sharing your story! And if you like to write, I would love to publish a guest post for you on my site! I think you’ll enjoy the community.



  20. Thanks for this chart. Im a low earner and I always thought it was bull, that when our supplemental insurance guys would come and say, “oh you will only being paying x amount out of y so you will be saving pretax”. That only works if you are in the higher earning brackets. There is no saving when your paycheck is already low. My check is reduced by the full amount of the premiums even though I do pre-tax my contributions(health insurance, 401k, and supplemental).

  21. I am going to respectfully disagree with your figures for the younger crowd. In my first 8 working years post-college (so, the ones leading up to the 30-year-old mark), I made an average of $26,000 a year (considerably less at the beginning, considerably more at the end). As you point out, median worker income in this country is around $30k, and younger folks tend to make considerably less than older folks. I say all this to point out that my situation is not atypical: my income for my age over those years is a little bit low for a college graduate, but not that low–my guess is that if I were to have direct access to the pays stubs of all my college friends for all those years, my average would be firmly in the middle of the pack.

    During those 8 years, I was able to pay off all my student loans, my car loan, and save some (more than your recommendations for percentages for my income levels over those years), but I didn’t just fall short of your recommended 180k by age 30; I wasn’t anywhere close). My grand total at that point was $22k in a retirement account plus $14k in an emergency fund. I could have saved another $10k were it not for a medical issue that drained my emergency fund at one point, forcing me to restock it, and of course one *always* could have done more, but if you run the numbers, you can see that not even your “low end” $127k was in my reach. (I had roommates; I bought almost all my furniture from thrift stores; I had exactly one expensive vacation that cost me $3000).

    I agree with you that saving is an imperative (and I think I have done that); I just don’t think your numbers are really for people who “don’t make much money,” especially when one considers how incomes tend to vary with age (with even college-educated 25-year-olds making considerably less than the 40-year-old versions of themselves).

    1. Thanks for sharing your story Claire. I really appreciate it. I’d love to hear more of your perspective on your peers who are in this income range and how much they’ve saved, and how you/they plan to save some more and eventually achieve financial independence. If you have any desire to write a guest post and try your hand at blogging, let me know!

  22. I agree with your figures and mindset fully. It’s very sad but there is a large number of people who were simply not taught ANYTHING about money, credit, savings, etc. by anyone in their lives. Even today, many parents act as if talking and educating their children about it is taboo when they are doing nothing but forcing their kids to learn the hard way by making mistakes rather than going out into this modern money based world informed and proactive.

    This is exactly what I and a number of people that I know experienced and we unfortunately are not the only ones. Many years were wasted on mistakes that I would have easily avoided had my parents had simply given me the information needed. We cannot forget there are some lackluster parents who fall down on the job. Sure after a certain age we are responsible and ignorance is not an excuse, however, there is also no legitimate excuse for parents to have children they do not teach and lead by example. But still it happens. I will never understand why people bring children into this world and neglect important areas of their life and growth. Sad.

  23. Man I Didn't Like the Tone of This Article

    “Choose to have as many or as few kids?” So let me get this straight: I should eschew having children, drive a 1989 Honda that breaks down 3 times a year because I don’t make payments on it, live in a studio shack that costs a pittance and never work out at a gym or go out to dinner….all in the name of having a comfortable retirement? Wow. SO what else did you spend your 20’s doing? Have you picked out your coffin? Did you go with silk or was that too extravagant, wouldn’t want to spend more than you have to after all and it’s not like you’re gonna be alive to enjoy it! Seriously, I get that it’s incredibly important to make sure you’re taken care of once you’re too old to take care of yourself. Even more important if you’re such a tightwad you didn’t even have a family, because then you’re going to have to PAY for people to make sure you take your medicine and don’t wander out into traffic. But lets not lose sight of the fact that, no matter how long you hope your “retirement” years are, they aren’t guaranteed to everyone. Life IS short. Fill it with what matters. And I don’t need to point out the fact that working out is good for you, right? Taking care of the body that actually DOES the work will probably increase your ability to be USEFUL during those elderly years. Gah. I hope I never get old and think I know everything about being young.

    1. It definitely is a balance about living it up and not running out of money and having the government or someone to support us.

      Perhaps Gen Y is right? YOLO?

      You may enjoy this post:

      1. Man I Didn't Like the Tone of This Article

        It’s just, I’m really struggling with a lot of financial information getting chucked at me at once. My husband and I are 28 with 3 kids. On one side, you get a lot of mud slung at you over whether you’re saving for your children’s college educations and a whole lot of judgey parent crap like “Blah blah blah don’t you care about your kids at all!” On the other side, you’re realizing “Hey, 30 isn’t really that young in terms of How Much Have You Set Aside For Retirement?” I’m still not done with my own college education, I chose to spread it out over my 20’s rather than incur student loan debt. I’m 8 classes shy of a BA that we have paid for out of pocket and through grants and scholarships. He’s in the army for now, finishing his own degree as well, but isn’t 100% sure the army is where he wants to stay. And we’re enlisted not commissioned, so we’re a one-income family of 5 bringing in about 54K a year. I know once all the kids are in school and I’m ready to re-enter the workforce, he’ll be able to contribute a lot more and so will I. But where we’re at now, “living it up” is a bit of a stretch when describing our lives. We go nowhere. We do nothing. We live off of approximately 1800 dollars a month after bills, which goes faster than I’d like it to and even faster when we plunk some money into our personal savings account, which gets raided yearly due to some issue or another: Dishwasher crapped out, termites, whatever. The house we bought last year has needed some work, and since we want it to be there for us 30 years from now it’s not like we can put it off. It’s probably very easy to look back with 20/20 clarity on how you could have spent differently or saved better. But in the trenches, it isn’t as clear-cut and doesn’t boil down to concrete figures. Besides which, I have real concerns about the economy and where that money even goes. What if the market crashes? Will we lose everything? Will we have forced a savings plan to work in an already overextended budget, for nothing? My husband has a thrift Roth IRA through the army, they don’t match contributions and up to now we have contributed very little (like, 1%). He’s getting a promotion, we plan to bump up a few percentages. When I start working, we’ll seriously ramp it up. But will our money be safe? Didn’t a bunch of people lose their retirement savings during that big crisis a couple years back?

        1. Thanks for sharing. I think it’s great you will be finishing your BA, and I believe you’ll have more opportunities upon graduation.

          The key is diversification. But it first starts with saving aggressively. Raise those percentage points for saving until it hurts so good. Then raise it again. Diversify into stocks and bonds. We had the worst crash ever in 2008-2009, and now the markets are at record highs again. Stay the course, and I strongly believe you will be fine!

  24. This is quite useful information and I love it.
    my income is 25000 INR per month and at the end on month i end up spending all money and could not able to save the money. Now, i am 29 yrs old now. Please help me with the saving Techniques.
    Looking forward asap
    Thank you.

  25. fakecountry

    Um… the title of this article is “How To Save More For Retirement If You Don’t Make Much Money” and then you begin by saying that by age 30 I should have saved $180,000.

    How in the hell do you save anywhere near that amount if you don’t make much money???

    You people have no idea what it’s like in the real world for people who ‘actually’ don’t make much money, do you? Thanks for nothing.

  26. I am saving till it hurts and then some. I calculated that for the past two years I was able to save 100% of my earned income. I’m happy to say I managed to live off my passive income only basically for the last two years. Feels like a little bit of a accomplishment! Current checking, savings and retirement accounts are totaling about 362k as of today according to personal capital. I turn 30 this year and plan on keep going strong!

  27. I am 62 yrs old, I lost everything last year (long story). I have 0 to retire on, no savings. I am still working and expect to continue working until I’m physically able to. I make $52k per year. Can anyone please help me devise a savings plan to help me retire someday. Thank you all for your suggestions.

  28. My wife’s Retirement Plan is for me to work till I drop so she can collect on my life insurance plans.

    All kidding aside, I’m impressed with Fidelity’s Retirement Planning Services, tools / calculators and I’ve spent considerable time looking at my numbers under various inflation, investment return and longevity.

    My biggest retirement concern is when De Blasio was elected as Mayor of New York City this past November. We are already taxed to death by City, State, Federal, Sales and Property…….and our soon to be elected Mayor is promoting the socialist concept of taxing the rich. I don’t consider myself “rich” but I do believe that I will be caught up in the desire to level the playing field.

    God help us!

  29. Hi First of all let me tell you, Love your blog…
    Me and my wife make combine income of 180K gross. I am 40 and my wife is 34. I have been contributing on my 401k for last 12 years and since last 3 years i am maxing out my 401k. My wife she started working 4 years back also has 403(b) and 457 plan and we also maxing out on both the plan. So total of 51K we are saving Pre-Tax. Do you feel we putting too much in pre-tax? We also religiously put in both Roth-IRA and 529 Plan (2 kids). I have few Individual stocks but not good planing on Post-Tax Saving Plan. Do you have good suggestion on Post_Tax Saving other than Saving act and CDs. I also have 250k mortgage and was thinking of paying it off early (5-7 years), not sure if that is such a good idea. My goal to semi retire @ age 55 want to start my own realestate and have wife working till her age of 55 (i will be around 60). We like to travel and have steady retirement income of 200K/yr. Love to hear from you.. Thanks

    1. Hi Ray,

      Welcome to my site and hope you’ve subscribed on the top right. I don’t think you are putting too much pre-tax at all, b/c I don’t think maxing out our pre-tax vehicles is enough.

      Best, Sam

  30. Stefanie @ The Broke and Beautiful Life

    Having variable income is the hardest part for me. I don’t feel comfortable contributing to my retirement accounts throughout the year as I don’t know how much income I can anticipate and I may need that emergency money if things get rough. Instead, when I book a new gig, I calculate how much I’ll make and then figure out how much I can afford to deposit into my IRA. Thus far I’ve been able to max out my ROTH each year. (The 401 k is a bit trickier as I only get contributions when I’m working and not from all employers).

  31. I’m 43 unemployed I have only saved $4k in super
    I am freaking out. How can I boost my super?

  32. mysticaltyger9

    I have to say I have to agree with the recommended savings percentages for those on lower than average incomes. I live in the high cost San Francisco Bay Area (not as expensive as SF proper, but still one of the higher cost parts of the already high cost Bay Area). I made 45.5K in 2012. I saved $12,725 in my 401K plan last year…so my income was on the low end of the 45K-65K range yet my savings was on the high end of the range for my income level.

    It can be done if you:

    –Don’t have kids, or at least don’t have them out of wedlock. That’s financial suicide.
    –Don’t drive new cars. (Mine is 16 years old and runs fine).
    –Live in a studio or shared housing instead of a 1BR apartment.
    –Keep the food budget resaonable. Stock up on things on sale. I still eat out at moderately priced places 2X per week (usually for lunch, which is cheaper).
    –Skip the Cable TV. Most of what’s on is junk anyway…and almost all of it has too many commercials. You can get DVDs from the library, watch stuff on YouTube (My 42″ TV screen is hooked up to my PC. I have wireless mouse & keyboard), or get NetFllix.

  33. I am new to the corporate world having just graduated in May, but was lucky enough to find a decent paying job that I started in August at 42.5k a year. My question to you is that there is no way I could max out my 401k each year, not saying that I’m not saving I put 10% with a 7% match, but I am saving for a home so need to invest my savings in something a little more liquid than a 401k. That being said I do still spend a lot of money on having fun, a lot to due with the fact that most of my friends either dropped out of college or are just working part time jobs. I will say that my plan is to increase my 401k contribution everytime I get a raise, which if histroy holds true should be around 3% per year depending on economic conditions. I also am eligable for a 5% bonus every April depending on how the company is doing, which currently would be just over 2k. I plan to add 2k to that each year and load it into a Roth. Given my circumstances, would you consider me on track (also no debt)

    1. Matt, too early to say if you are on track if you just graduated in May 2012.

      At least you’re thinking about your savings and retirement, which is a good first step!

  34. In my humble opinion the RothIRA is the best saving vehicle there is….except the 5k/yr limit.

    5k/yr. after tax money
    30 yrs. earning FS’s est. of 8%/yr.
    Indiv. investment of 150k over 30 years
    Your TAX FREE money at retirement age of $561,461

    If your finances for investing for your future are tight, I think this is a good plan….

    First, if your company matches a 401k contribution and pays for the management fees, do the max employer match contribution first…..that’s an instant 100% return on your investment.

    Then max out your own and your wife’s(if married) Roth before investing any more to your 401k.

    IMHO it’s also a matter of government stability. The Roth IRA tax advantage isn’t a “right”, it can disappear at any time.

    1. I make less than 15,000yr and pay rent and other bills. Now, I am over 50 and work less than 40 hours, and don`t have any savings.
      I would Like to know if it is not too late for some retirement plans.
      Roth? or 401k ?

  35. For all the rules and advice, I think it alls comes back to determining what’s important to you. Like someone said on another post, Gen Y we’re happy with internet connection, our iPhones, and then in my case a Starbucks coffee (killing someone due to caffeine withdrawal will def put a hamper on future earnings and retirement savings).

    The H and I make more than this guideline, $170K/ year pre-tax. But with our budget we will save a little less than $50K next year between 401K (not including employer match), IRAs, savings, and other investments. I’d like to save more, but one of those judgement calls of things thats important to us is being active. And our food bills run us like another mortgage at ~$900/ month. Could we cut that down some and invest it, yes. Would we be happy if we did, no. So we make sacrifices in other areas. Like not buying a lot of expensive clothes, and both driving cars that are 7 years old and each have 100K+ miles on them.

    I think savings should “hurt”… but maybe not on the stuff that is integral to who you are and what TRULLY makes you happy… Let it hurt on the other stuff.

  36. jairus mcallum

    i agree with the story but the obama part i heard enough from alot of these ignorant ass people. i see yall not talking about bush and how he didnt know what the hell he was doing while in office.

  37. It might be better if you are more careful with you recommendation of contributing to an traditional 401K vs Roth401K or just Roth because some, for example people in the military, have tax exempt income which leaves the effective tax rate lower than when they will retire. In this case a Roth is better since the Taxes then will probably be more, especially if you have a big nest egg to draw from when you retire. Our income for example is about 120K, due to some income not being taxable our actual “taxable” income is 86K and after all the detuctions our tax rate is only 9%. Do you think we will be at a 9% tax rate in 35years when we retire? We are mid 20’s with one spouse in military and the other having professional career.

    1. Are you talking federal, state, or combined? Sure, why not? Move to Hawaii and your pension (giving you are talking military) has no state tax at all. Several states are like this.

      Do what you feel is right. Saving is better than no saving. I cannot know everybody’s individual case, and whether they have a sweatheart deal from the gov’t, have carried interest income, an inheritance, a pension, etc.

      The point is to save.

  38. Sam,

    I agree with your concept. Just wanted you ask a few questions. The average college grad comes out with $20 – $25k worth of student debt. They also have typically another 5k or so in credit card debt. I think the average salary for a 2012 grad was around $40,000. Starting our professional careers, most of us are typically at least 20k in the whole. If you took federal financial aid, there is no real benefit in paying off student loans early. The interest rate is fixed, and you even receive a discount if you have it auto-deducted from a checking account. Not to mention the fact that you can write off student loan interest on your taxes.

    What is your reccomendation for tackling student debt/debt in general vs. saving. I have an average salary (50k). I put 8% into a roth 401k, (company match is 5%) This is about as much as I can afford as I try to windle down Credit Card debt. I’m doing my best to save and want to maximize that for my future, while also reducing debt at the same time. Thoughts?


    1. Hi Steve,

      Welcome to my site! I’m glad you are at least contributing to your ROTH 401K currently. I don’t know your entire financial picture, and your cost of living, but my suggest is to TRY and increase your 8% savings to 10% and see how you feel.

      Slowly turn that savings notch up until you feel PAIN. After a while, you will start getting accustomed and do what you can to make yourself feel better e.g. cut down on expenses, stop accumulating CC debt, realizing that true pain is starving on the streets.

      Also, ask yourself why you have $5K in CC debt. Was it for necessities or desires? You’ve got to cut that out and not having revolving CC debt.


    1. Seconded! I am looking to go into private banking and have been doing research on it for awhile! I would like to see how much harder and more stressful the work of a private (not investment) banker is compared to that of a retail banker.

      ARB–Angry Retail Banker

  39. charles@gettingarichlife

    If you have a big mortgage in an expensive state and NOT maxing out 401K and Roth you can’t afford your home. Our mortgage with insurance is 25% of our income, but I still felt we couldn’t afford it with maxing out two 401Ks and Roth IRAs. We rent downstairs out, we rarely see the tenants. The only drawback is we lose our backyard. Only in America is a 2500 sq ft house on a 10000 sq ft for four people is average, yet the cost of maintenance for that prevents them from maximizing their retirement accounts. The worst part is once a calendar year passes you lose a year of contribution.
    Rent out rooms, build a garage or back extension for additional income. You’ve been to other countries, the rest of the world live in much smaller homes with multiple people. Problem now is my wife is itching to take the rental check and buy her an LV bag.

  40. Great write up! I just spoke with a friend who lives in Manhattan. His family never made more than $75000 combined in the last 12 years. Yet he has has managed to save over 50% consistently. In this 12 short years, my friend bought a small condo and, today, he took over a small restaurant.

    You can save 40-50% once you decide to do so because you will adjust your expenses to make it happen.

  41. Hey,

    I have a question. What if you do not like any of the investments that your company is offering in a 401k plan, or think you can do better yourself?

    Also, does putting money in a 401k plan lower your tax bracket? For example, if I make 60k and I put the full 17 into the 401k, would I have the same tax bracket as someone who makes 43k?

    Please let me know.


  42. Great article except for one consideration for the likes of me: student. debt.

    My conundrum for the few months I’ve had the funds to contribute to 1. my emergency fund 2. retirement AND 3. paying down my debt has been how much, or, what percentage of my income each month should I be putting towards each? I have $11k left in student loan debt (my only form of debt), I contribute $500/mo to our (my husband also contributes about $600/mo) emergency fund and $200/mo to my consolidated student loan. I have the opportunity to increase that amount by about $800/mo to any of these 3 places and I’m trying to figure out which one should get the gold. My instinct is to put it towards my loans, pay those off in a years time and be done with it but my total savings is grossly under what you have listed as where I should be by the time I’m 30 (I’m 28 now and hope to have around 30 – 40k by the time we’re 30).

    Any recommendations for where my $800/mo surplus should go?

    1. charles@gettingarichlife

      I recommend open an Ally account, make it a Roth IRA and place your emergency fund in the no penalty CD of .84% You can draw out principle from a Roth at any time, (not the interest). You want to do this so that you don’t lose a year of Roth contribution. Once your debt is paid off and you have additional money you can always place outside money into a no penalty CD as emergency, than rollover those CDS to investments. That way you will have additional money in your Roth.

      1. For the emergency funds, instead of a CD with Ally, I believe a savings account with CIT Bank would be even better. Last I checked, the APY was just shy of 1%.

        ARB–Angry Retail Banker

  43. Does this equation change if you invest in a business or real estate. I have a regular job and I only save 3% in my 401k. The majority of my money is invested in real estate. For example, I have more than 5 rental properties (several are paid off) that generate <30k per year (after expenses). The money from the rentals is re-invested to purchase more homes. I also have a business that generates <20k per year. This money is re-invested into either the business/real estate.

    1. Sure, the equation changes if you are making 50k a year.

      Divide 50k by a realistic risk premium of say 3% and you’ve got a retirement nut of around $1.65 million.

      Why not max out the 401k first?

  44. Yes, lets put more money into the hands of bankers who rape you, lets put more money in places that are regulated to death…you cant take money until 59,60,63,69,70,80…etc etc, oh, and when you take it there is a new 5% social tax….sorry! Listen folks, it all sounds good now but remember its all paper. A dollar saved 100 years ago is worth 4 cents today, and that rate of decline in value of the dollar is increasing faster than ever. Spend now, risk now to make a return now and live your life now, and what little you do save put it somewhere other than in a bankers hand, if YOU cant hold YOU don’t own it.

    And no, I’m not poor, not even the slightest, and yes, you can do it as well, just buy a laptop and fire up Google, there’s terabytes of ideas/suggestions/business/opportunities to make money on.

    1. How would you recommend saving for a 401k or 457 if you are a public sector worker who participates in a pension plan? I make 38,000 a year and pay just over 10% into a pension plan. I started a 457 contributing 4% pretax and 1% Roth. Changed that to 5%/2% and just recently again to 12%/2%. How much should I rely on a pension? I realize this is unique given the availability of pensions in the U.S.

    2. Yes, let’s put it into the hands of the government instead. You think we bankers are stealing from you? You don’t know what theft is until you see how much of your money is taxed and where it goes. Sure, take my money and send it to the Middle East! I certainly wasn’t planning on using it.

      ARB–Angry Retail Banker

  45. Cheddar Stacks

    I don’t know about you all but I’m getting cheddar stacks over here! I live in the midwest and… make good money..yes, can be boring but you can afford to do any damn boring thing you want and save a ton simultaneously. Almost left Oklahoma for California which would have been the worst decision in my life. Being a mortgage broker rocks!!!!

  46. I was just starting to enjoy your savings guide & some of your other articles until I got to the part about saving for retirement if you don’t make much money and needing to vote for Obama to continue the prosperity of the middle class. Obama is AGAINST the middle class. Raising taxes on the rich will not solve anything. Re-distribution of wealth is not the way to go. If the companies & business owners “the rich” are not making money then the working man “middle class” is not making money. We are seeing companies closing their doors all accross the mid-west due to higher taxes & increased gov. regulation. Fewer companies =Fewer jobs. Re-distribution of wealth by raising taxes on the rich & passing it on down the line will not help the middle class at all. It will simply fly right over our heads and be handed down to the freeloaders that abuse the system with Welfare & Food stamps. I’m not saying that I am against federal assistance for the needy with the key word being NEEDY, but the majority of the people that get federal assistance such as Welfare are just abusing the system & do not want to “better themselves” by any other way than reaching into MY (and any other working persons) pockets!

    Other than that a lot of the other stuff you wrote about saving for retirement makes some sense. Have a nice day

  47. Island Hopper

    I have read both articles (stumbled on through Google) and while I was shocked at first, after crunching the numbers think it is do-able, and you offer sage advice. I am 42 and I am living on a tropical island making ~50k tax free. Looking at the 300k goal for my age it was disturbing to say the least as I was 40 with no savings aside from two small pensions from previous employers. What made it do-able was taking the 25 years left and seeing how much/ year I would need to make the 723k (2,461/month) and I can do that! It might hurt a little, in that, for the last 3 years I have only been putting away $1200 a month, and I definitely don’t have the $43000 difference between the two contribution levels squirreled away. Therefore, some drastic cost reductions are needed. I can still island hop if I trim the fat elsewhere.
    I do thank you for posting these articles as it is tough to figure out what a person realistically needs to save for retirement.

    1. Sounds like a good life! Which island, and how is your 50K tax free?

      Glad you enjoyed the article. I’ve got a house in Hawaii that I plan to live in for 3-6 months a year myself!

    1. It’s up to you, but probably best not to since you have to live somewhere. If you have more than one house, and can sell another in retirement to extract the equity, then yes.

  48. I really loved your articles and the stern tone of disciplined saving. It is worth Re-reading again when you feel you deserve to spend large sums of money on things like car

  49. @Cindi

    Check my entry a few comments above and i’ll try to respond if you have any questions. I found this site a while ago but just happened to stumble back to it tonight and decided to begin commenting. Hopefully the samurai is ok with my comments :)

  50. Check my entry a few comments above and i’ll try to respond if you have any questions. I found this site a while ago but just happened to stumble back to it tonight and decided to begin commenting. Hopefully the samurai is ok with my comments :)

  51. Any suggestions for a newly divorce 45 yr.old working two jobs and trying to figure out how much to invest and where to invest to have a little something in 20 plus years???? HELP

  52. So my husband and I both work at jobs that do not offer retirement options — and don’t pay much. His salary is deposited directly into our checking account monthly, and I get a check weekly. In both our cases the taxes are already taken out. How do we put pre-taxed money into an IRA?

  53. Is there any other options other than Roth IRA ( dont trust the government that they wont tax me in the future ) Maybe I am wrong but I thought that the government made the same promises on social security not being considered taxable income which it is. Are you 401k figures over inflated to cover the tax you will need to pay out of your NUT ( 401k is not tax exempt but tax deferred? Is there tax exempt saving tools that would be more tax favored than 401k?

  54. People must have inheritances or something :-) I save 10% of my income and I have 12K in 401K and 21K in Roth IRA. I have scraped together 10K for a down payment on a house and have kept that in a CD for a few years, and it has made very little money. I have a midwest salary, maybe that is the problem. From about 24-30 I made 36K per year. When I was 31 I found a job making 45K. I am 32 years old. I feel like I am on track, but after reading this I do not. It can be difficult starting a new job and having to wait a year before 401K benefit and not being vested before leaving a job.

      1. Thank you so much for writing back. I was often thinking about how I was going to come up with all that money to be on track. I may not be as far off as I thought because of the Midwestern location. I have doubled my savings rate to about 20% of my take home paycheck and I am feeling pretty good about that. Hopefully I get a raise and can retire at about 57 as I had hoped :-)

        1. In my opinion everyone is different. To compare yourself to a chart may hurt more than help. Take for example how you felt better when the midwest factor was brought back into the equation. It may be easier to think about what percentage of your current income will you need annually to live comfortably in retirement. These things we speak of are so relative you cannot really put it into a chart. For example what does “confortably” mean, or to save enough so it is painful and hurts in the short term, in exchange for better fruits in the future? Since that is tough and also things can change as life passes you may want to reverse engineer things and make a plan from there. Some financial advisers state one can live on 80% of their current income in retirement due to hopefully not having a mortgage at that point etc. Others say one should go ahead and expect to save enough to replace 100% of their current annual income in order to have the same standard of living. Since we don’t know what the tax structure will be, let alone inflation leading upto and during the years of retirement this is why FS calls to max everything out and pretty much save as much as you can everywhere you can. If you believe retirement is the biggest priority in life and can sacrafice standard of living for the 25-40 years of work leading upto retirement that is a very personal choice. I would rather take one small vacation every year, than no vacations at all so i can enjoy life during my working years for example. Here are some variables i have considered: what age would i like to retire? (when running the 401k calculators you will find maybe working 2-3 more years than expected could boost your account value hundreds of thousands if not millions). Take the average lifespan of your gender and consider how healthy your lifestyle is, and how healthcare will likely offer bumans the ability to live a bit longer in the future. Decide if you want to pass any money to your heirs or if you only need enough to live for your own lifespan. Decide what percentage of your current income would you need to replace in order to live the lifestyle you envision in retirement. Run those 401k, and IRA calculators on a regular basis to ensure you’re on track. Be sure to account for tax brackets on your 401k, and disregard the tax brackets for any ROTHs. Be sure to compare those numbers to a drawdown calculator so you can see what your account values will provide on an annual basis which will give you the number of years the acount value will last, or will give you the amount per year it will provide based on a static years in retirement number. And for the scary part be sure to include 2-3% annual inflation!! Once you account for both income taxes from withdrawals, inflation-adjusted valuation, and expected lifespan it should give you an idea if you’re on track. The next step is to learn about the markets: equities, bonds, commodities, currencies. Things that can affect your account values and tools that can be used to protect your gains, or increase leverage if that is what is needed. All the work will be for nothing if you can’t replicate the “rate of return” assumption that these calculators call for. Education is your best tool for retirement, never stop learning so you can protect your gains and position for sdequate risk management later in life. If you’re younger you can take bigger risks that is why i like stock options although they are not for the weak stomach. Real estate is a very good long term investment. I recommend reading crash boom by greg rand as he provides i nice perspective on the current opportunity and in real estate and investment property. Good luck to all.

  55. Regardless of income, financial independence is a choice that requires sacrifices, PERIOD. After reading this post, I checked our annual saving rate, and it is around %35+ range for the past few years. For my wife & I, financial independence started with paying off the house, so we just did that.

    1. Excellent work! Sacrifice is needed indeed. I venture to guess that even the most financial sacrifice, still pails in comparison to the real sacrifices others make in their lives in other countries. We have it good.

  56. Umm, wow: For whatever reason, you do not make a lot of money. It could be by choice (messed up in school, less lucrative field) or misfortune (laid off, accident, starting over). Once you recognize you are of lower income, you’ve got to come to grips with the fact that retirement is not going to be filled with milk and cookies. Way to put down 99% of people.

    Yes, saving for retirement is hard, but when are people going to understand that MOST people aren’t full of money… that median income in the US is $51,914… that’s HOUSEHOLD income.

    WE NEED REAL ADVICE… not, you must have screwed up in school…

    1. Jill, you can blame me for not earning and saving as much as you desire, or you can look yourself in the mirror and admit the truth.

      I know the truth is hard to handle sometimes, but without knowing the truth, you will never change.

  57. Amy immermann

    Also I will get arnd 1400 at 62..1400 a month…I’m a widow….67…1750…that’s calculated in addition to my 3500 I’d have from retirement savings..I’d have each month…what should my mortgage or rent be….??? 25 percent of my income?

    1. Typically housing should not represent more than 30-33% of your gross income. I would check out SEP-IRA or ROTH IRA

  58. Amy immermann

    I just love urwebsite..and your information…thank you….I am self employed with dog business..80000 in stocks…that’s debt..savings 10000…48 years old…I clear after taxes 1000 a week…I am not acting poor like I should….losing house..upside down on mortgage…my goal in 14 years have 3500 with retirement funds calculated at 6.5 return…just making the return to live on….should I just rent and save money? Or save to get a small…tiny house in a few years…..what Ira tool or savings tool could I contribute besides what I do now to save for retirement?…should I retrain for job?…even a job at 70000 doesn’t do better than what I get with the dog business now…unless their is more benefits to have with working at a company…ur advice would be quite helpful to me…..thanks….amy

    1. I think you should diversify your savings as you never know what could happen. It’s a bull market now in August 2014, but bad things happen all the time.

      Aim for singles and doubles, and not home runs. Good luck Amy!

  59. Hi Sam,

    I’ve really been enjoying absorbing all of the information on your site so far. Thanks for putting all this great stuff out there so that people like me can benefit from it!

    I was wondering what you thought was a good savings/investing strategy for someone in my position. I’m a 26 year old graduate student with at least another 5 years to complete my Ph.D. I have almost no debt (a few hundred in credit card, but will be paid off by the end of summer) and am on a stipend that covers most of my education costs. I also make around $1000/month in income from the stipend for living. However, I am able to save more than most in my shoes because I live in my parents’ house rent free. As far as I know, my university does not offer any kind of retirement accounts for graduate students.

    So, if I am still trying to save 20-30% of my income each month, where is a good place to put it other than a savings account? An ETF maybe? A regular savings account? Money Market?

    When I do eventually get a salaried position with a real income in 5-6 years, I will definitely be keeping your savings advice from this post in mind. Also, I really appreciate your optimistic attitude and outlook. You set a great example for those looking for guidance with finance/saving/spending behavior/shifting perspective/etc. I figure I will probably be behind your suggested savings guideline chart by about 8-10 years by the time I start saving anything significant (I will be 31 or 32 by the time I have a job and an income above poverty level), but I can still do my best to catch up!

    Best of luck with everything!

  60. Great site.very informative.I am 32 with 5500.00
    Sitting in cash in a Roth Ira.I need to cash out to pursue
    Higher education and the tax implications are a little beyond me.
    I have depleted all contributitions so what is left is earnings.I am
    Not able to fund the Roth due to my income,but I do contribute 15%
    To my 401k.I am in the 15% tax bracket,does it make sense to cash
    Out Roth and pay penalty or stay in the Roth until I can afford to make
    Monthly contributions.

  61. I really like your advice. I was searching around about retirement, and I’m behind the curve. I’m active duty military enlisted and plan to stay to 20 years if possible given the environment. I’m also about 3 years from an electrical engineering degree. Saving is hard with a wife and 2 small kids, but I could probably put away at least 20% of my income right now. We live in the DC area right now and make probably 75k pre-tax. If I was working on the outside, it would be close to 90k including my allowances. People might say that’s huge, but rent and expenses in this are are outrageous. My goal though is finding not just saving but what to save in. I will probably put most into IRA and TSP (like a 401k) as that is what I know. Being as busy as we are, we need simplicity. My wife and I are both 31, hence being behind the curve. We currently have an investment property that should net about 100k once it is paid off in about 20 years, but have little else other than savings account and paying off our condo that we live in. I’m currently saving 10% and only have one car payment, but every year it gets harder.

    Like a couple other though, I did recoil at your command to vote for Obama. A head race to Greece style financial collapse is not preferable to me just to reap in the short term. $1.5 trillion a year in deficit spending does not make me feel any more confident about retirement. As for your rich comment, you could take 100% of what those evil rich are making and it won’t matter because Obama and Congress will not cut any real spending… the programs in place and imposed will spend more than that additional tax and more. All of our politicians should take your advice concerning public spending.

    I personally don’t count on Social Security as a form of future income in retirement. I believe it will be gone by then. For all those that gnash teeth about paying into it, they have to realize people now, especially in the middle class, take out of social security more than 3 times what they contributed over their lifetime. Couple that with all the IOU’s that have been replaced for the pot that was there, and there will not be anything left by the time us 30 somethings can draw from it.

    Sorry for the rant, just hard to believe someone with such sensible saving advice is toeing the “give me a hand out and sock it to the ‘rich’ while you are at it” line. What do you see as a good fire-and-forget investment for someone in their 30’s? I understand to go less risky closer to retirement, but as I plan to work until at least my 70’s, what is a good mix to invest in prime earning years?

    1. Jeff,

      On Obama, if you can’t beat him JOIN him and embrace the reality! Obama and Big Government will screw our future generations whether you like it or not. Hence, you might as well get on board and reap the rewards of big government. He’s not going to raise middle class taxes, and at the very least, you won’t be paying more.

      Obama will get re-elected. Unless you are making $200,000+, and more like $500,000+, it doesn’t make sense to vote Republican.

      You’ve got to read more posts on here to get my style of thinking and writing.

      Here are some:

      1. I am in my early 30’s and advocate a ROTH over a traditional pre-tax IRA for two main reasons. I believe taxes when we retire will be higher then, than they are today. FS i think would agree given the statement made regarding the possibility of Uncle Sam changing the 401k withdrawl penalty to a later age (59 1/2 to 80 – oh what fun that would be!). That was a new one to me but you never know really what is going to happen. ROTHs are your best hedge to increases in taxes from an account-type perspective as you will nit have to pay income taxes when you withdraw from it. They also have a nice feature that if you REALLY had to, you can withdraw your contributions without and penalties or taxes at anytime (any earnings or appreciation from those contributions cannot be withdrawn without penalty so only your orignal net contributions can be touched). I am not advocating ROTH withdrawls as i believe what you put in toward retirementnshould be used solely for that and therefore NO withdrawls but if you had an emergency it is nice to know your cash is not as locked up. For a fire and forget investment (this is als something i do not advocate as i believe all investments should be evaluated regularly, rebalanced, diversified etc on at least an annual if not quarterly or montly basis) but if you really had no interest in trying to prevent losses and wanted to only dollar-cost-average your way to retirement i would recommend a lifecycle fund aka target date fund. Go with an A-Share class mutual fund with a target date of when you plan to retire so for you it would be a 2050 or 2055 target fund. These mutual funds automatically adjust your stock and bond allocations over time so as you approach retirement your stock allocation will go down and your bond allocation will go up. I like that you have real estate in your portfolio as this investment category will do very well over the next 20 years. In fact real estate is one of the few sectors that is actually showing signs of improvement albeit slowly. Stock market performance even when adding in dividends pale in comparison to real estate over long periods of time unless you know how to actively trade, however active trading presents very different and arguably larger risks than long term real estate endevours.

  62. I feel stupid for not taking my 401K seriously until I was 39. Now just turned 41 I’m taking it very seriously and have a plan to be able to “max out” by age 43. Right now I have a little annoying debt to take care of. I’m just praying to get to the 1 million dollar mark at 65. Not gonna be loaded but can at least be respectable and self sufficient.

  63. Nice blog, I agree with these views. I am a poor college student and I am 7k of debt, I am planning on selling my car to recoup some of that debt and I will start working eventually when somebody will give me a job that doesn’t require physical labor.

    Don’t look at me as if I am a loser I made in killing in the stock market from ages 13-16 but I spent all of that money in the first 2 years of college. I wasn’t able to keep up with both school and my classes and so it is all gone all I have left is my car.

    -i have already face the fact that I will be poor forever its the plight of the proleteriat

    -yes i was one of those kids who bought apple stock because my home room teacher told me to

    -yes i live a ignorant middle class imaginary lifestyle but it has come crashing down over the past few months

    -I am happy to say I was able to use some crude accounting tricks to dodge taxes and have only paid about $160 dollars.

  64. Very good post! Even when I was a “poor” teenager working at Wal-Mart, I still managed to save 15-20% of my income. Now that I make much more, I’m able to save 50%. And it’s not even painful, which probably means I’m not saving as much as I could, right? :)

  65. Very interesting.Enjoyable reading. I know at my age I need to put away $5000 per year(allowed) in the 401 k – making up for years w/out real income. Good goals.

  66. One thing to note. I very well might hit the AMT, if I were to put aside the 30%-35% pre-tax away as you suggest. I do need to run some numbers, although it would be quite hard to hit that level just yet. We’re approaching the 20% level this year I believe and that’s on a single income.
    Just wanted to remind you that AMT may NOT be your friend. :-)

    Thanks for all the food for thought though!!!!

  67. John Stanton

    I am curious if the savings of Americans (on a per capita basis) has increased over the past couple years. My suspicion is that it has decreased due to the economic situation. It will be interesting to see what the long term ramifications of inadequate retirement savings will be.

    The US got very close to having a revolution during the Great Depression — why do do think we got the New Deal? It was not because FDR liked poor people ;-)

    Extrapolate your graphs….

    No matter how much I save, it won’t matter if dollars are worthless. We have to fix some fundamental problems in this country or the future will not be pretty.

    But Moore’s Law might yet be our salvation… All hail the Singularity!

    1. I think savings has improved drastically as people “know better now”.

      Also, depreciation of the USD hurts, but if just stay in the US all your life, then it cancels itself out and doesn’t matter too much.

      1. The savings rate in USA has increased very much lately however there has also been large volume outflows from mutual funds in these last few years. Where is that money going? Well either into cash (bad for a depreciating USD) and into US treasuries (in a 50 year bubble). While I agree with alot of what has been discussed I would tend to disagree that a depreciating dollar can be categorized as a “doesn’t matter much” event. There is always the option of uprooting to a lower COL area who actually eants to be forced to consider that other than last resort? Dollar printing hurts all Americans and is a sinister way of stealing wealth. We are spoiled by it and all will change if we lose the world reserve currency status. Current Fed leadership enacted QE as a strategy to avoid deflation not inflation. This proves endless depreciation is a larger risk. IMHO ask Japan about deflation, or ask Zimbabwe about a depreciating currency.

  68. We put in 50% of our gross pay into Roth 401Ks and Roth IRAs (maxing both out). After taxes of 30%, we are left with 25% to live off of. Company matches 5% to make wages 105% a year. It has taken a number of years to get to this point, but as the saving habit gets ingrained, it becomes easy. We have been doing this for enough years to have gone from retirement planning to working a couple of years for endowment for future generations. It can be done.

  69. I am very excited to have come across this article today. Very interesting and informative.

    I am 26 years old and would really like to focus on my savings. My employer does not offer a 401(k) contribution; however, I have a money market account and have maxed out my Roth IRA for 2011 and 2012.

    What next?

    I have slightly less than my total annual income in a money market account earning 0.65%. Should I be placing these extra funds elsewhere?

    1. Money in a money market account in my opinion should only be used to fund your emergency savings amount measured in months. Work to get to six months and start a separate account to save up for investment property and a brokerage/trading account. Eventually work up to a 12 month emergency account and allocate everything else into real estate and brokerage investments and active trading. For anything not going toward investment property i put about 70% to trading (i am an active trader) and 30% longer term investments. These numbers are after maxing my employer 401k match, maxing the ROTH, then going back to max out the rest of the 401k.

  70. I’ll be turning 28 this year, and I’m waaaaay below corresponding point on your chart. Kicked over into a positive net worth when I paid off my undergraduate loans at the end of 2010, and now I’m aiming to get through grad school with no debt (working full-time and saving to pay back subsidized student loans before they start to add interest 6 months after graduation).

    Currently I’m saving 5% into a 401(k) — no company match — and plan to max out my Roth IRA this year. My goal in 2012 is to save or donate a combined 50% of my take-home income, but most of my savings are going into the grad school fund and my emergency fund. I’m also getting married in the fall, but I’ve been saving up for a small wedding, and won’t take on any debt. I’m thinking that once grad school loans are paid off, I’ll have lots more to put toward retirement (definitely 20% is possible); I just don’t think I’ll catch up to the recommended levels…. um, ever.

    1. Remy, try increasing that 5% to 20% savings rate. I don’t think it will kill you. Make it hurt a litte, so it hurts so good.

      Then, do the math. You’ve got to do the math to see if you can make it. Then, you’ll get even more motivated.

      Good luck!

      1. Moving 20% to my 401(k) from other savings would mean that I couldn’t pay for grad school. Currently about 18% of my gross salary pays for school; that’s a larger percentage after factoring out taxes and insurance from my paycheck. I’m supporting myself and my fiancee on less than half of what I make, but we can manage that because we’ve reduced a lot of costs in this high-COL area (roommates, no car, minimal cell service, no land line, no TV, only used clothes, no vacations). Trust me, it already hurts.

        For reference, here’s the previous month’s breakdown:
        Save or donate 50 percent of my take-home income.
        In January, I saved 57.2% and donated 10.8% of my net income. (I’m counting the cash I applied to the accounts, not any interest earned.) Here’s how it broke down:
        Emergency Savings: 15.1%
        Xmas 2012: 1.8%
        Wedding: 5.7%
        House Fund: 7.1%
        Grad School: 23.4%
        Roth IRA: 3.5% (**this will be more in future months to max out contributions)
        401(k): taken from paycheck; 4% of gross income (**now 5%); not counted in this total
        HSA and medical FSA: taken from paycheck; not counted in this total
        Investments: taken from bonus; not counted in this total
        Church Pledge: 7.3%
        Other Donations: 3.5%

        So in one manner or another, I’m saving 60%+. It just has to go to other things than retirement right now.

        1. Remy- Your situation and savings goals sound similiar to my own a few years ago sans saving for a wedding, and my income was higher as individual. Looking at what percentages you have alotted tocertain areas it seems you might make the some of the mistakes I did while being a saver (40 to 45%) and a giver (6 to 8%). The author is right in steering you away fr8om even thinking about purchasing a home within the next few years because of the numbers (and even future numbers) you projected.Your first priority should be to pay back your student loans. the only thing that is sure in this life is death, taxes and having to pay back student loans. saving for a home counterproductive while you still have debt. I was an eager beaver and bought the cheapest condo I found several years ago and finally got rid of it after realizing it was a poor choice. You get what you pay for. Would have been better to analyze my reasons for wanting to buy a house. If I’d done so I would have realized that the tax write off not really worth it( especially for it not being a dream home or investment property.)) Also would have been better to wait and save another 20% or so and purchase in a better neighborhood to insulate against some losses. Some nicer established communites less than 1you mile away saw as little as 8% decrease in value, that difference when you live on the other side of the railroad tracks. So save as much as you can to buy the best home in the best neighborhood when you can afford it. Also I recommended becoming very intentional in your giving. I give to my church and also was donating to whatever charity expressed need or gave a good presentation. Now that I a little older than

        2. …a few years older and a lot wiser I plan my giving. I give to a few charities that speak to my heart and have proven/public financial statements. You can research most charites online to validate that the money is spent as intended. I was shocked to find some natl. Charities I routinely supporteddidnt have the best track records. I’m sure you work hard for your money too so it worthdoing the research. I also stopped writing small checks to charities or making mall donations because they sell your information. You may also find it easier to track and complete your your taxes. Smartphone typos too hard to correct. Good luck. Check out radiohost Dave Ramsey.

  71. generally agree w/your concepts, but like another poster, you lost credibility with me by injecting a vote for govt dependency – many financial calculators have the option to include or exclude Social Security from retirement calculations – since you posit that voting for the Democrat platform of entitlement (and yes, i know SS is *my* money) is best if you don’t make a lot of money, i’m going to assume that you recommend including Social Security in retirement calculations? (you don’t mention it specifically)

    as for me, i do not include Social Security in our retirement calculations – except as an adverse tax burden – i would think that counting on govt entitlement is NOT a good facet of financial planning

    1. You don’t think the Democratic party is more focused on redistributing wealth from the wealthy to the rest and creating a bigger social safety net than the Republican party?

      Who’s for raising taxes on the wealthy? Extending unemployment to 99 weeks? Enlarging welfare programs?

  72. Wow, I am nowhere close and I am in my late twenties. My husband and I have a little over $21K and we thought we were doing okay in the retirement department. I usually do the 4% assumption when calculating for retirement needs.

  73. Last year we managed to save 38% of our net pay. Hurrah! This was to our IRAs, 401(K)/pension, investments, and our general savings. Our goal was 50%, but we had to fix our foundation and paid for an Alaskan cruise a few months earlier than planned to save $600 off the ticket price (I use the word “save” here because we were planning on spending a certain amount of money anyway).

    This year we have another goal of 50%…I hope we get even closer.

  74. Emily @ evolvingPF

    I am wondering what you take is on my situation given these charts that you made. My husband and I are 26 and currently make about $52,000/year, which is the median income in our city (so not high, not low cost-of-living). We are in graduate school on stipends, which is why our income is at that level, and are prevented by our contracts from having secondary jobs. After we finish our degrees we do expect quite a jump in income and will likely be high earners later in life, which means our standard of living at retirement will require a high account balance. So my question is, what would you recommend for a savings rate for now, when we are low-earners? Should we save 10% or so as recommended in this chart (we don’t have 401ks so we use Roth IRAs), or $34,000/year (not possible on our incomes)? We currently save 17.7% of our income but that doesn’t even max out our IRAs. My answer so far is to save as much as we can while still living comfortably.

    A related question is how to practically use the “If you don’t find it painful saving money, you’re not saving enough” guideline. Initial cuts are painful but we all become accustomed over time. It’s the same with your workout analogy – if you keep doing the same routine, eventually your muscles won’t become sore any longer as your body learns to use those muscles more efficiently. For example, when we first cut our cable it hurt but now we don’t miss it. Yet I don’t think it’s reasonable to cut and cut one’s standard of living to the bone. How would you recommend finding a balance when feeling pain is relative?

    1. Hi Emily,

      Sounds like you guys are in for a very big jump in income as $52,000 combined a year between you two is low, but for a reason.

      I’d make sure your debt levels remain low, and you inch up your savings percentage rate by a percent a month until you feel the pain, then keep it there for 6 months, and increase again.

  75. Sam or any other knowledgeable poster,

    I could use some advice. I am 25. My wife is 23. We currently make ~85k combined. We live in DC so the cost of living is high. (atleast for me. I am from Fl) Our rent is $1400 a month for a 2BR. We have 1 child. My wife is working and pursuing her MBA which we are cash flowing. She graduates in 2 years.

    We are only saving $~400 a month in our 401k.

    The only debt we have is SL debt (~90k OUCH…STUPID TAX)
    Our income will go up 20k in 2 years just from the career path of my job. Then whatever she earns when she gets her MBA.

    We don’t have much if any left over each month. After she finishes school should we bump the 401k contributions or knock off the debt?

    What would be your suggested plan for us?

    1. What is your student loan rate? Your situation is only temporary if she gets a job, so I wouldn’t fret too much. If she is getting her MBA part-time, look to write off that entire tuition expense to her income if she’s working in a related field (check w/ an accountant).

      If your SL interest rate is over 3%, I would do a 70 pay down / 30 save ratio.

      1. Thanks for the reply. I currently make 50k and she is making ~35K. The interest rates vary but it is ~6%. Yes she is getting the MBA part time.

        I am in a career ladder type program so my income will be ~70k in 2 years.

        God willing her income will definitely go up but just pretend it doesn’t and we have ~$1200 per month left over with us contributing ~6-7% to our 401Ks.

        What would be your course of action?

        Emergency Fund (3-6 Months), Retirement, or debt repayment. I am guessing your answer would be a combination of them and if so at what rate?

        Another question I have is about purchasing a home. I would love to save for a down payment and possibly have a mortgage that is cheaper than my current renting price on top of being in our home instead of an apartment. I do understand being an homeowner adds more risk but I wanted to know your thought process.

        1. Don’t purchase a home until you have 30% of the value of the home in cash imo.

          You can deduct the interest on your student loans btw. I’d crank out the 401K contribution based on my guideline above. I can’t imagine your SL rate is that high in this environment.

  76. I loved the post but I am WAY under in my retirement savings. Like embarrassingly low compared to the chart.

    I have been entirely too focused on other goals which may or may not b helping future Evan.

  77. Sam,
    Good article, but please follow up on one thing- Contributions to traditional IRA’s when one has an employer sponsored plan are phased out according to AGI. So you usually cannot get the tax benefit on both contributions to a 401k and a traditional IRA. See IRS publication 590.

  78. Well written and spot on. It’s important we do the math ourselves to face reality. I like what you suggest of continuing to turn the screws and save more!

  79. I think Sam’s guidelines are spot on, it will sound like tough love for those who haven’t managed to save enough. Realistically, many older people will be unable to catch up because they will not be able to increase their income/savings in the limited amount of time they have left.

    Given that retirement accounts have the advantage of growing tax free and Roth accounts benefit from tax-free distributions even those who haven’t saved much up to now should give this some thought, I think everyone can experience some level of financial independence if you want to truly make it a priority.

    1. I hope that enough people under 40 can read this article and get cracking. I don’t think the article is tough love. It’s just the truth, and the assumptions are all quite reasonable.

  80. I think 8% average market returns will hold up. My personal returns (individual stocks rather than using index funds) is running at 20% return since 2007, so that’s including the market crash.

  81. “If you don’t find it painful, you aren’t saving enough”

    My generation must be getting the screws with this economy because I don’t know anyone from college or in my life (save one friend that became a chemical engineer) that makes over $25k.

    Take into account the higher and higher costs of living and I’ve got a life savings of 5k at 28 at the moment.

    My job isn’t stable enough to do any 401K etc. BS and I don’t really see myself living past 40 with the trends in war and plagues.

    Don’t you find it ironic that you’ll go your whole life working and earning money just to hoard it away to someday die with a bunch of money you won’t use (assuming you’ve got kids they’ll get it?) and then you did all of that for what? I suppose I’d rather live now and do it comfortably and have a super miserable old person life, which won’t matter since I’d be dying soon anyway, than to squeeze every dime from myself just to be saving?

    I find it odd how society has become so enamored with money and buying and saving and worshiping everything money and financial gain. I remember how in school they teach you about the times when knowledge was important and most people lead comfy lives practicing a trade and then just died and that was that. Now we’ve become nothing but money mongers because that’s what has become the most important thing with the development of the planet.

    Maybe I missed something in life when I decided that I don’t care about money, living poorly my whole life, never owning a house, and never caring about retirement because I’m part of a class that would only rise to those levels if I tried harder than anything and cared about such petty things first and foremost…maybe that’s why we have lower classes than the elite super wealthy…hell anyone with 100k in the bank is super wealthy to me. If I had that kind of money I would be able to make a ton more…but who knows.

    Maybe someday I’ll make a ton of money without ever really trying, and maybe all those with money will somehow manage to skirt death and make their financial gain actually worth their time.

    1. My belief is that only the poor or the super wealthy say money can’t buy happiness and that one shouldn’t care. When you’re poor, you shun the idea of accumulating money since it’s so difficult.

      I am shocked you only know ONE person with a college degree that makes over $25,000. Is this a 4 year college degree? At 28 years old, I’d think you’d know a MAJORITY of people who make over that!

  82. Glad I am seeing these series now (while I am still young). Now I just have to put to practice what the Financial Samurai himself preaches!

  83. World of Finance

    Great article Sam! The key for me as you pointed out is to not increase your expenses as you increase your income. The has helped me save a lot of money. I plan on continuing to increase my income and keep my expenses the same. :)

  84. Incredible post! Your arguments are all very motivating, and I fully agree that our culture does not do enough to save. Glad to see I’m almost at par with your recommended savings.

  85. Didn’t read the other comments, very much agree to it, although I am mid 30’s. The tax rate is calculated as ‘single’ or ‘married joint’. Seems not to match with fed rate chart.

    Also, I can raise healthy question on stopping at 35% saving. understand it’s personal opinion.
    I specially liked the similarly you drew between saving and exercising. No pain, no gain.

  86. I do think your recommended savings rate chart is reasonable (and doable), but I think that’s a different question that what some people might be asking themselves: “How can I possibly have 180,000 by age 30 if I only make $35,000 a year?”. I suspect they’d be better off by just focusing on saving at least 10% of whatever they do make.

    1. It’ll definitely be tough saving $180,000 by 30 and $35,000 a year, hence, it probably won’t happen if one doesn’t raise their income. However, the good thing is, you don’t need to be at my retirement level pace if you are only making $35K since you are used to making this amount.

      I do believe folks should strive for saving these levels.

  87. I automatically put 3% into 401k and 3.6% into Roth IRA. Then, when I get my tax return, I dump it all into the Roth. (I make sure to get a decent amount back each year as a savings mechanism…and I understand the arguments against that.) That puts me right around 11% savings per year. However, I am nowhere near your numbers. 33, 8 years working, 35k saved.

    I guess the old “save 10% of your income” advice is a little outdated. And I thought I was doing well.

    Time to up the 401k contributions. Thanks for the dose of reality.

    1. Hi Mike, yes, 35K is kind of tough if you do the math. That might get you through one year of retirement if you retired today.

      I don’t mind folks getting a tax refund b/c it’s a relatively easier way to save money if you do indeed save it. I think you know in your heart that you can bump that savings up 10% and still feel OK.

      Turn the screws and feel a little more pain!

  88. I think the chart is a great chart, Sam! If I may suggest an improvement, I think it’s possible and perhaps even imperative to raise the savings rate at lower levels of income. That gives you more of a buffer and also reduces lifestyle inflation and retirement requirements.

    According to your chart I am below the min, but I am taxed closer to 50% overall and I started working at 25, not 22. Oh well, I’m still young.

  89. Darwin's Money

    Most people find it tough to fall into a certain income echelon and not spend like their peers, but spend like they make half that (bc that’s what it would take to move from the savings rate of typical Americans to what you propose). That doesn’t mean it can’t be done; just explains why so few do.

    I am behind everything in the article except “* Vote for Obama. With a ~$2 trillion dollar deficit generated under the Obama administration, the incumbent is your best bet for ensuring that social welfare programs, unemployment insurance, affordable healthcare, and low taxes continue for the middle class.”

    By voting for Obama, or just going with your “social welfare, print dollars” theme in the future, all that does is further imperil Social Security, Medicaid and the various government programs that young people have to pay into all their lives only to realize it’s gone by retirement. This is not a 4 year issue with is at near-term risk. It’s 20-30 years down the road that it’s going to collapse. Some very small painless changes now could change the trajectory into solvency but Dems come up with all kinds of populist ridiculous excuses why we can’t raise the retirement age by 2 years 20 YEARS FROM NOW to fix the system. It’s all for a good soundbite but the bottom line is the systems are currently insolvent and bankrupting the entire country. So, by voting for more of the same, it’s not really helping anyone. It will be gone.

    1. You make some good points, however don’t you think the poor and middle income earners who could not, or decided not to save are more concerned about the near-term, rather than the long-term? If one has no job and can’t afford to provide for their family for 1 more month, does the long-term really matter?

      It’s the whole reason why supporters of the Democratic party are OK with raising taxes on others, even though they pay the most. What’s more important is taking care of people’s short-term needs, and dealing with the long-term repercussions for our children.

  90. I do sometimes think of the “worst cast” scenario, and living in America, it’s like a cake walk compared to so many other countries.

    Ironically, in the worst case scenario, I do think Obama will bail us out better than any Republican for a year. Then it’s on our own.

  91. I love this article- one of my favs. I am attempting to max out my savings percentage every year. Its become second nature now, but it was a bit painful in the beginning.

  92. Good article – one thing I always suggest is to start from the end and “reverse engineer” your budget. Make 50,000k/year pre-tax and deductions? Using Sam’s chart you’d be putting away 7500, leaving you with 30,000 post taxes. Take out your fixed monthly expenses (rent, car, cell phones, gas, etc.) and THEN decide how you’re going to spend your remaining income. Its amazing how much easier it is to stick to a simple budget and eliminate materialistic bullshit when you’re forced to compare whether that morning coffee is more important than buying a new pair of shoes.

  93. Right now my math tells me I don’t need such a big calculator. In fact I could use my fingers. I will start saving this year though. I promise. Not you me. :)

      1. I shoot out of my 2 bedroom apartment. It doubles as a studio during the week when the family is out. So far I am able to make it work but I have a feeling I am going to need something bigger soon. If I book something on the weekend I go to their place or location.

  94. Well Heeled Blog

    My partner and I made around $140K last year total and put ~$33.5K into Roth IRA, 401K, and SEP IRA, including employer match. We also put money into shorter-term saving accounts like travel and school. We try to target saving 1/3 of our gross income, but I think we have been slacking lately. That’s why this line “If you don’t find it painful saving money, you’re not saving enough” really spoke to me. I am trying to figure what matters, what doesn’t, try to spend wisely on the former and cut as much as I can from the latter.

  95. As you progress in your career it does get easier. If you maintain your lifestyle and not increase it there will be lots of money leftover. Also, FS doesn’t talk about this, but the “company” money that is put away on your behalf can be substantial. For example, my company contributes 6% to a CBA plus a 6% match on a 401K.

    So here’s what my plan looks like:
    15% 401K
    6% match <-company
    6% CBA <-company
    15% after tax
    2% <- obama payroll tax cut (extra savings).

    This total comes out to 44% of income, and that's not even trying very hard. The after tax number will be higher for sure.

    1. I purposely removed the company matches from the chart (one of the assumptions in the previous post), to try and counteract the years where we lose money in the chart. But yes, company matches REALLY start adding up over the years as well.

  96. Sam,

    This is a good post, but I will just nit pick a bit on one of the points mentioned…

    You mentioned 50% of working Americans make $33k or more a year, but this is in the top 1% of the world. I would challenge that statement… America is 5% of the world population, so 50% of working Americans would equate to 2.5% of the world work force, right… so no way this is in the top 1% for the world.

    I’d suspect the top 1% worldwide annual income is about $100K USD. Reasonable to think that 40 million people make at least that salary across the world based on 4 billion people working out of a population of 7 billion.


      1. Sam,

        Nice link- but note this passage from the article:

        It only takes $34,000 a year, after taxes, to be among the richest 1% in the world. That’s for each person living under the same roof, including children. (So a family of four, for example, needs to make $136,000.)

        So this is household income divided by the number of people per household. Given the average household is just about 3 my $100K per household number holds up!

        Just another example on how reporting a headline number can be misleading without context.


        1. Do individuals of one and families of two not exist? What about families of 5 or 6? How would you calculate them?

          After tax is a good point. How do we know what the taxes rates are and if they pay taxes since half the people in America don’t?

          I think you are missing the gist of the article, and my passage. Which is that it doesn’t take much to be a top income earner in the world, especially if you live in America.

        2. Hi Sam,

          Actually it was a minor nit pick. I don’t disagree with the main gist of the article, which is to save more.

          Good stuff.

  97. I agree with your points and a dose of reality. I don’t know who votes Republican and thinks they will benefit from a financial standpoint if they are making under $200,000. The reason is unlikely financial, but religious or on anti-abortion issues and so forth.

    Since the people making $25-$200,000 dominate the people making more, Obama is going to work for the majority.

  98. If you can’t save a lot you could try moving to a country where your purchasing power is much greater. I”ll probably do that.

    1. I agree with this outlet if one doesn’t make it on the retirement savings front. A lot of lifestyle bloggers who couldn’t make it during 2008-2009 due to the economy moved overseas and are loving it on $1,000-$1,500 a month which is awesome.

  99. You’re probably right. I wanted to give the Mid Westerners the benefit of the doubt. The differences are less pronounced percentage wise at lower income levels due to fixed basic costs.

  100. When I started saving for my first house I was earning $7,500 a year (my wife earned $7,500 too). It was a long time ago and my wife and I just graduated from college. I put down (approx. $10K) 1/3 to assume their mortgage. I saved that in 6 years and part of the time I was in the Army (21 mos.). As my earnings increased I saved more and four years later bought my first rental property (9 unit). Anything is possible and it does not matter how much you make.

  101. Like you have shown, saving is possible for everyone. I too liked the line that if it isn’t painful you aren’t saving enough. It’s true. We should max out our saving ability in all aspects. It will only help us down the road.

    I also think you need a good plan in place. Without it, you don’t know where you are going or what you should be saving with or for.

  102. Thanks Sam for putting this post together. This post really helps. Need to get my savings together and bump my 401k contributions back up. Think I might need to be more aggressive with the savings than my plan was initially. I’m behind the 8 ball here. The reminder about mindset is really important. Pretty sure I lost my ever-loving mind when I got my first job. I thought I was rich, but again I’m not rich. Remembering that is so important when you don’t make very much. This post is encouraging. Thanks again.

    1. No problem Rachel. Glad you find this post useful. I lost some marbles my first couple years of work too and bought a car and a motorbike! What a waste of money.

      Bump up the jam. Good luck!

  103. I am no where near where your charts say I should be. I currently save 5%, and have maxed out my company matching at 2%. In April, my contributions will kick up to 6%, right at the time that I also get a raise. (I have the retirement savings increase automated.)
    Since I’m toward the high end of the 65-85k category, I should be saving just under 21% of my income to max out (does that mean 19% from me + the 2% from my employer? that’s what I’m going with for my numbers), so another $435/paycheck. Could we do that? Yes.
    Could we do that without taking on debt? No. If we were willing to take out more money in student loan debt for C to be back in school, we could max out my 403(b), but instead we’re choosing to pay for it out of pocket.
    Could I do this if we had no debt? Oh goodness, yes. If we didn’t have my student loan payments (~$710/month), I would easily figure out how to max the retirement. And that doesn’t even touch the mortgage.
    Right now, we’re on a balancing act. C has been out of work for 2.5 years. We expect him to be a drain on finances (school costs) for at least another 1.5. After that, we don’t expect him to earn any money for another 2 years. So 3.5 years before we get any income from him. But the truth is, once he does start making money, we can throw all of it at retirement because we will have spend 6 years living on just my income and doing fine.

    1. Is C gettig his PhD? How come you are assuming no income after he graduates for two years?

      Balancing act is right. Once he starts working, you guys are going to crush your savings goals! Just keep the temptation of more money in check.

      1. He’s getting a combo BA/BS now, and then wants to go on for an MS in math. The program he is looking at entering says that the majority of their students pay for the MS program via fellowships and TAing. He knows we can’t afford to pay for graduate level courses out of pocket, so the deal is, whether its through fellowships or elsewhere, the two years he’s in the MS program, he has to find the way to pay for it. (We could keep paying what we’re paying for the undergrad program, but I’d like to have that money back, too.)
        So yeah, two years of the MS program with no income from him, but no additional outlay.
        HOnestly, our allowances will creep up (but they’ll do that as I get raises anyway), and there are a ton of renovations we’d like to make to the house, but we’ve gotten really good at balancing savings for retirment and savings for specific goals, so I think we’ll make it through ok.

        1. Ah, gotcha. Good for him for wanting to get his Masters. Yes, there is a lot of grants and TAing, which should essentially cover all his costs.

          I hope it pays off in the end. Sounds like you guys have all your ducks in order and have a plan, which is more than half the battle!

  104. Your saving chart is reasonable for savers. My first job paid about 50k/year and I maxed out the 401k back then at around 9k and send some extra to the Roth IRA.
    For 2012, I’m maxing out 401k and saving the rest of the after tax money in preparation for the big day. :)
    I checked your 401k guideline again and I’m actually around the middle and not the low end like I thought previously. I’m actually between 35 and 40 so by extrapolating, I’m doing OK.

  105. ” I’m planning to up that this year.” Why this year, why not today? So many good intentions never happen as people put them off.

    For example, how many times have you heard someone mention they were going to make that 13th mortgage payment this year? What percentage of the people made the payment, if I had to guess I would say less than 10%. That’s why instead of making on big extra payment to my mortgage, I add a few hundred dollars to each monthly payment.

  106. From your neat little chart, we’re suppossed to be saving 20%, but we aren’t. :-( We’re currently doing 6% into the 401k and I’m planning to up that this year. We’re also saving about $100-$300 each month but not all of that is going to retirement.

      1. I still would survive and lead a happy life if it the 401k contributions were at 10%. How about we meet in the middle at 8% and after I’ve been able to adjust the budget to that, shoot for the additional 2% (making it 10%).

  107. I wish I had read this post when I first started working many years ago! I was so dumb to think that I had to wait until I was older to start contributing to a 401k because I “didn’t make enough.”. You say it perfectly that saving isn’t supposed to be easy at a low income. I was spending money on new clothes and other junk when I should have been saving that money in my early 20s. Luckily I didn’t bury myself in debt but I would have been a lot closer to the ideal 401k contribution range now if I had taken the pain and saved more earlier on.

  108. Money Beagle

    Those are lofty goals and I admit I’m nowhere close. Still, I know that I actually have more in retirement savings than 80-90% of other people my age even being quite a bit below the thresholds there. It is a scary proposition.

  109. Glad my “California Currency,” comment for your previous post made you chuckle! I’m also glad you followed up that post with this one, based on some of the arguments you got from the previous post.

    I like your take that you don’t need much money to retire on if you’re used to living off of not very much. Factor in too that many retirees no longer have a mortgage, kids living at home or even kids college expenses to worry about. As long as inflation for greens fees at the local golf course don’t get out of hand like inflation for college, we’ll be golden!

  110. I am enjoying your series on 401ks. I always thought I was doing very good with mine but only shows that I am not judging myself against the right standard and validates that a lot of others will be in real trouble.

    As for the vote Obama thing that may be the answer for the poor but if those programs mentioned and tax rates continue or expand worse things may happen vs. assuming it will be good for the poor. It could mean more layoffs, new businesses not forming and an overhaul poor economy where the stock market and 401k balances continue to flounder.

    1. It’s definitely a possibility if Obama spends too much and squeezes the rich too hard, the middle class and poor will ultimately suffer since those being squeezed will just say “Screw You”. However, I don’t think Obama will be able to raise taxes given the Senate and House will be Republican majorities.

      Better to have the devil we know and stability in the White House for 4 more years.

  111. Jeffrey Trull

    This is my favorite post of the year so far!

    Based on your chart and where I stand, I’d say it definitely makes sense. In terms of what I’m able to save, I’m on the high end of your chart.

    Recognizing you’re not rich is a very important step. Even after getting my new job last year (which is the highest-paying one I’ve ever had), I had to take a step back and realize that I’m not bringing in that much money.

    I planned to vote for Obama in 2012 anyway, so this benefit is a bonus for me!

    1. Hi Jeff, sounds good. Yes, it’s important to get realistic with our finances and spend accordingly. We make $80,000 and see some commercial of a millionaire spending money on fancy things and tell ourselves me too! Nope! Not us too!

  112. “If you don’t find it painful, you aren’t saving enough” Love it! How true is that for everything? We all make excuses and justify the things we want rather than being realistic about the things we need. I know I can save more myself, I’m working at it, but it can be a slow process to undo the damage you have already done by committing to lifestyle expenses.

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