How many times have you read a headline that fairly screams “retirement crisis” or some variation on that theme. I often get the question – Am I saving enough? Or, how much should I be saving? There are number of handy rules of thumb that can point people in the right direction but each requires a bit more understanding than simply a percentage or a dollar figure.

Let’s begin with a better understanding of where to start. If you look at your paycheck the first number we need is your “net pay” which is how we will form our baseline. Take that number and multiply it by the number of paychecks you receive each year then divide that by 12 for your monthly baseline cash flow. That’s pretty simple math and it gives us something we can start to work with (a bit of a simplification, yes, I completely agree). Rule of Thumb #1 – the higher that number, the more you should be saving. Why is this? For starters, Social Security is going to cover a higher percentage of a lower monthly amount than a higher amount.

Let’s run through an example: Let’s say your annual salary is $65,000. Depending on your tax and insurance deductions (let’s leave your retirement savings out of it for now), your take home might be something in the range of $43,500 or $3,630 a month. On the other hand, let’s say your annual salary is $95,000, your monthly take home might be something closer to $5,300. If the average Social Security is $1,920/month, then you can quickly see that $1,920 covers a bigger chunk of $3,630 per month than it does $5,300 which means the higher earner needs to save more to make up the difference.

The next step is to consider whether or not you have a pension (and yes, there are still plenty of those floating around out there). If you do have access to a pension and you are the lower earner in the above scenario, then you don’t need to save nearly as much as the higher earner does who might not have access to that pension. This leads me to Rule of Thumb #2 – if you don’t have access to a pension, the more you should be saving. Of course, having a pension isn’t fool-proof and you may want to be saving more to insulate yourself from the risks associated with non-government based pensions but that’s now a matter of choice rather than baseline survival.

So now we have some idea of how much we need and what structured resources we might have available so let’s turn to what we should be saving. You’ll often hear “you should be saving 10% (or 15%, or 20%) of your income” or “you need to save up 10x your salary.” That give us Rule of Thumb #3 – target 10% of your salary since it is an easier equation to work with. That being said, don’t forget that if you are receiving a matching contribution from your employer that counts towards your 10%. If your income is higher and you don’t have a pension, you should be thinking about saving a higher percentage. If you want to retire before your Social Security Full Retirement age, ditto. If you want to retire before you are Medicare eligible or earlier, double ditto. If you are getting started later in life, want to retire before you are Medicare eligible, and have a healthy income, perhaps consider couch surfing for a while so you can catch up on your retirement savings.

But what about all those “what’s your number” ads? So, here’s the challenge with those – what’s the time frame leading up to that “number?” What life expectancy is being use in that calculation? What’s rate of return on your assets? What rate of inflation is being used for your expenses? All of your expenses, or is a different rate being used for your medical expenses? What rate of inflation is being used on the Social Security benefits? Rule of Thumb #4 – if you are using one of the many computer formulas available online, make sure you understand how they are calculating what you need to save to make your “number.”

Of course, all of this starts with the making sure you have a good handle on your cash flow, have your non-housing debt eliminated (or under control), and are considering a retirement lifestyle roughly equal to your current lifestyle. Here you have Rule of Thumb #5 – If you aren’t sure where to begin, begin at the beginning. Start saving 1% of your pay (net or gross, your choice) and put a note in your calendar for three months later. This lets your budget adjust for 3 months. When that three months is up, increase your savings by 1% and mark your calendar out three more months. Repeat this process until you’re saving at least 10%. Can’t find 1% (or whatever you need)? Come on in and I’ll help you find it (full & fair disclosure, my version of what you need in life is probably going to look different than yours….).

So there you have it – a solid five Rules of Thumb to bring some perspective to your long-term savings plan. Draw yourself a little hand-turkey (remember those from kindergarten), label the fingers, and post it on your fridge as a reminder on how to secure your future. And who said money isn’t fun!