When trying to figure out how much you need to retire, there are many different rules of thumb you could follow. While I've previously discussed the 4% rule and the rule of 20, which both calculate your likely income at retirement, the most common calculation on how much to save up to retirement may be the 10% rule.

The 10% rule simply states that you should save 10% of your gross income. Note that it's gross income, not your net income or paycheque. For example, If you earn $1,500 every 2 weeks and get paid $1,000 after taxes and other deductions, you should save $150 every 2 weeks, not $100.
The issue with the 10% rule is that it only really applies to someone that starts saving in their early twenties and continues until their retirement. If you are over 30, you should consider adjusting this percentage to 15% or 20%.
Using the $150 bi-weekly example above and assuming a 7% rate of return and a retirement age of 65, let's look at how your age can effect the end result of the 10% rule.

  • Starting age of 25 would have $804,472 after 40 years of saving.
  • Starting age of 35 would have $380,650 after 30 years of saving.
  • Starting age of 45 would have $165,200 after 20 years of saving.

Obviously it's not reasonable to simply say “save 10% of your income” without taking age into account. Wondering how much more you would need to save at ages 35 and 45 to make up for the lost time and still come in at the $800,000+ that the 25 year old would have accumulated?

  • Starting age of 35 would need to save $317 bi-weekly, or 21%.
  • Starting age of 45 would need to save $731 bi-weekly, or 49%.

That's not to say that if you haven't started saving and you're 40 years old there is no hope for a comfortable retirement. If 10% is all you are currently able to save, then save 10%. You will still be better off than the many Canadians that save less and you'll also have the support of the CPP, OAS and any work pension you may have. Plus, once your mortgage is paid off, save the money that would have gone towards your mortgage payment and you can still retire in style!

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About Tom Drake

Tom Drake is the owner and head writer of the award-winning MapleMoney. With a career as a Financial Analyst and over eight years writing about personal finance, Tom has the knowledge to help you get control of your money and make it work for you.