How much should you save each month?

Published: Tuesday, January 25, 2005 at 6:01 a.m.
Last Modified: Monday, January 24, 2005 at 10:42 p.m.
NEW YORK - When it comes to putting away money for retirement, Americans age 25 to 44 save an average of $547 per month, according to a survey by AXA Financial Services, a wealth-management company. Americans age 45 and older save an average of $834 per month.
But is it enough? Experts have always recommended that you overestimate what you'll need for retirement savings. That's especially true now that Americans are living an average of seven years longer than in 1960. (A boy born today can expect to live to 74.5; a girl born now can expect to live to 79.9.)
Generally, you ought to save or invest at least 10 percent of your pretax income each month.
You might also choose to start out lower and gradually increase your contributions as (theoretically) you are promoted and earn more. In this case, aim to save or invest 5 percent of your pretax income each month until you reach age 40. Increase how much you save by one percentage point each year until you reach age 45 - when you'll be saving 10 percent.
The difficult part of this method is that you may find it hard to funnel more of your income into retirement savings if you become accustomed to a certain standard of living. If you know you'll feel the pinch later, you might be better off just jumping right in at 10 percent.
Either way, start early! The longer you delay in saving for retirement, the harder you will have to work to catch up. If you are young - say, 21 - simply putting $2,000 a year into an IRA can help you save about $1 million by the time you retire. Older people can still catch up: You'll just need to be even more diligent about saving before you spend.

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