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How much should I invest?


There are no easy answers when it comes to selecting the correct amount to invest during your working years, but consider the following rules of thumb as you try to zero in on an amount that adds up to a more secure retirement.

  1. Target 10% of your pre-tax income.

    Here's what conventional wisdom tells us: If you invest 10% of your pretax income from the time you collect your first paycheck, you may be able to generate enough income for retirement.

    However... if you got a late start OR if 10% feels ambitious, it's still a good number to keep in mind. Take a look at the calculator below. A 10% monthly investment rate can make a significant difference over time. Calculations are based on the median annual American household income of approximately $50,000. The U.S. Census Bureau reported median income of $50,233 in 2007*, the most recent such report.

  2. Increase your contributions over time.

    Even if you can't invest 10%, commit yourself to an investment increase every year. As you move through your peak earning years and you find yourself with fewer monthly obligations—children raised and mortgage payments become more affordable—add the extra cash to your retirement investments.

  3. Set milestones.

    Do a reality check at the end of each decade of your working life.

    For example:

    • By age 50, the amount of money you have contributed should equal 10 times the amount you expect to withdraw each year in retirement, in which case you would have $50,000 in investments if you need $5,000 each year in retirement to supplement your pension and Social Security.
    • If you need $20,000 annually (because you will rely more heavily on your investments in retirement) you may need $200,000 in investments by age 50.

Use our calculator to see how much you can accumulate if you invest $100 or more monthly. If you earn more than $50,000, it's easy to adjust the figures to fit your personal income. Simply divide your income by $50,000 and multiply the investment amount for any given year in the calculator, as well as the final amount, by the result:

This rule of thumb assumes that you will continue to add to your savings through age 62, and that your investments earn something on the order of 5% annually.


* U.S. Census Bureau Historical Income Table Households, http://www.census.gov/

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AARP Financial Inc. does not provide tax advice. Please consult a tax advisor for information pertaining to your particular situation.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, or legal, tax or investment advice, or a legal opinion. Individuals should contact their own professional tax or investment advisors or other professionals to help answer questions about specific situations or needs prior to taking any action plan based on this information.

The Financial Advisors are investment adviser representatives of AARP Financial Inc., an investment adviser.

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While AARP endorses the services provided by AARP Financial Inc., AARP does not offer financial products or services itself and cannot recommend that you or any specific individual should purchase any particular product or service. AARP Financial Inc. is an investment adviser and a subsidiary of AARP.