Am I saving enough for retirement?

(Money Magazine) -- Question: My wife and I are in our early 30s, earn a combined $150,000 a year and contribute an overall 13% of our salary to our 401(k)s, plus our employers match another 4%. We also have an emergency fund equal to 12 months' worth of expenses.

After this and some saving we do for other purposes, we don't have much money, if any at all, left over. Still, sometimes I'm not sure I'm doing enough and feel I'm behind in savings. What do you think? -- Nick C., West Chester, Pa.

• Email
• Print
• Comment

Ultimate Guide to Retirement

• Getting started
• 401(k)s & company plans
• Investing
• Annuities
• IRAs
• Self-employment plans
• Pensions and benefit plans
• Social Security
• Insurance
• Estate planning
• Living in retirement
• Getting help

Answer: Not doing enough? Seems to me that you and your wife have built a nice secure foundation for your family with that emergency fund and are also doing a more than decent job of socking away money for your future retirement as well.

Is it possible that you could be doing more? I suppose. But you've also got to be realistic. You can't live just for the future. You also want to enjoy life now.

You're looking at a trade-off here -- saving for a secure tomorrow vs. spending to have a good time today -- and you can never be sure you'll achieve it precisely. So you do the best you can.

And on that score, I certainly don't think you need to beat yourself up. Including your employers' match, you and your wife are putting away 17% of your combined salaries for retirement.

Clearly you are no slouches when it comes to preparing for retirement. In fact, as I look at your situation, I think there are three aspects to what you're doing that other people might want to consider when thinking about their own retirement planning.

1. You're making it automatic. You've no doubt heard the expression "the spirit is willing, but the flesh is weak."

Aside from its original religious meaning of taking care not to give in to temptation, this expression can also apply to saving. Fact is, even though many of us know we ought to save -- and may even have every intention of saving -- we very often don't (or don't put away as much as we should).

That's because saving is hard. Behavioral finance shows that while some parts of our brain are designed for rational thinking, others are hard-wired for immediate gratification.

When you consider that you can actually see that shiny new car you would like today while your retirement security is a hazy mirage way off in the future, it's not hard to understand why spending for today often wins out over saving for tomorrow.

But by doing the bulk of your savings through your 401(k) plans -- which automatically transfer your money from your paycheck to your account before you can get your hands on it -- you've allowed the rational part of your brain to get a bit of an upper hand.

Which in turn assures that the money you intend to save will actually end up being saved. That's huge. Of course, as I've noted before there are plenty of other effective ways to save money (which you can read about by clicking here and here.

But when it comes to building a sizeable nest egg over the course of your career, it's hard to beat the convenience (and tax breaks) of a 401(k).

2. You're building a cushion. Many people contribute just enough to their 401(k) accounts to get the full employer match.

So, given a typical 401(k) arrangement with a match of up to 50% of the first 6% of compensation, many participants contribute 6% of their pay to get the full 3%-of-salary match and stop there for a total 401(k) contribution of 9%.

That's good, but it may be enough. You don't give the details on how your 401(k)s match your contributions. But given the way most 401(k) plans work, it's very likely that, with a 13% contribution rate and a 4% match, you and your wife are both contributing way more than enough to get the maximum match from your plan.

That's important because by pushing yourself to contribute a little extra, you build in a margin for error that can come in handy in case something goes wrong.

What could possibly go wrong? Well, you could be laid off and thus unable to save for retirement while you're looking for a new job. Or you could run into unexpected financial difficulties and have to cut back on your 401(k) contributions or dip into your account.

Even if things go swimmingly throughout your career, you could run into a rude surprise on the eve of retirement, which was the case for people who retired just as the stock market was melting down in 2008.

The point is that saving an extra couple of percentage points or so a year over the course of a career can significantly boost the eventual size of your nest egg -- in some cases by 20% or more -- and give you more wiggle room to deal with the setbacks that life and the financial markets sometimes throw at you.

3. You're setting the stage for your eventual transition into retirement. The obvious advantage to saving for retirement is that you create a pot of savings to live on after you stop working.

But there's another, more subtle, benefit too. Someone who saves regularly lives a more modest lifestyle during his career than someone who earns the same amount of money but doesn't save.

Once retired, though, neither the saver nor the nonsaver will have their paychecks coming in to support them. So they're both going to have to adjust their standard of living in to whatever level of income Social Security, pensions and personal savings can provide.

But the nonsaver is going to have to make a much bigger, and tougher, adjustment. For one thing, he isn't going to have much, if anything, in the way of savings to generate retirement income. Which means he may very well have to get by only on Social Security.

And he's also going to experience what I'd call a standard of living shock -- that is, he'll be dropping from living large (or at least as large as his salary would allow) to a new lifestyle that, relatively if not absolutely, may seem like barely scraping by.

Conversely, people who have been saving substantial portions of their income throughout their career have already been living a more modest lifestyle than they can afford.

That fact, combined with the larger income they'll have because of the money they salted away during their careers, means they won't have to make as radical an adjustment.

Depending on how much the saver has socked away, he may not have to ratchet down his standard of living at all. All of which is to say that if you continue to save as diligently as you are now throughout the rest of your career, you should be able to make a relatively seamless transition into a comfortable retirement.

Finally, I'm sure I have to tell you that when it comes to retirement planning, nothing is guaranteed. So periodically you'll want to go to a tool like T. Rowe Price's Retirement Income Calculator to check your progress.

And if you find at some point that you are able to save more than you can now without cutting too much into your current lifestyle -- perhaps a boost in salary or refinancing your mortgage to a lower rate can help on that score -- then by all means you might contribute more to your 401(k)s.

Or you might consider options like a Roth IRA (assuming you're eligible, as it appears you are) or, for that matter, tax-efficient investments such as index funds, ETFs or tax-managed funds in taxable accounts.

Bottom line: I wouldn't go so far as to say you've got this retirement-planning thing licked. Too many things can happen to even the most diligent saver over the course of thirty or more years.

But it also doesn't appear you need to be obsessing about whether you're on the right track.