How Much of My Take-Home Pay Should I Put Into Savings?

The decisions you make now, such as deciding how much of your take-home pay to put into savings, have an impact on when and if you can retire on time. The more money you put into savings, the more time it has to grow. Adhering to any savings plan is beneficial if it forces you to save money, but you should always look for additional ways to add to your nest egg.


Those with financial expertise, such as Richard Jenkins of MSN Money and CNN Money Magazine senior editor Walter Updegrave, suggest saving at least 10 percent of your paycheck. However, you should try to save as much money as possible -- aim for at least an additional 10 to 15 percent -- because you never know what kind of calamity might occur in the future, such as medical bills requiring you to withdraw from your savings or periods of unemployment.


You should funnel as much of your salary as possible into your savings and retirement accounts, especially if you start saving late. If you are 25, for instance, and save $4,000 a year, receive 3 percent raises each year and achieve an 8 percent return on your savings, you will have about $1.5 million saved by age 65. If you start at 35, you will only have $900,000 when you turn 65. Also, there might some years where you are out of work or have a negative return on your investment, reducing your nest egg, according to Updegrave.

Retirement Plans

Talk to your company about its retirement plans. For instance, employers may offer to match 401k contributions at 50 cent on the dollar up to 6 percent of your salary. Also, you defer some of your salary until you withdraw from a 401k or IRA because your employer makes contributions using pretax dollars. Expect Social Security benefits to offset 20 percent of your pre-retirement salary. However, you might need additional savings if you live in an area with a high cost of living or are still paying your mortgage in retirement.


Keep at least three to six months of living expenses in a savings account so you can use them rather than withdraw from retirement accounts during times of unemployment. Whenever you receive cash gifts or rebates, such as a raise, bonus or tax refund, add the money to your savings account. Saving 10 percent of your paycheck is a good start, but increasing that to 15 or 20 percent gives you a greater margin of error.