How Much Do I Need To Retire? Retirement Calculator and Tips

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A lot goes into figuring out how much money you need to retire. For example, you must assess your lifestyle needs, understand your risk tolerance, consider the effects of inflation and create a budget based on your anticipated retirement expenses and income.

Experts have come up with guidelines to help you evaluate how much income you’ll need in retirement — and determine whether you’re on track for meeting that goal.

How Do Your Retirement Savings Stack Up?

A good way to start calculating how much you need to retire is to look at where you are right now in comparison to others in your age group.

The Federal Reserve Survey of Consumer Finances, 1989-2022, revealed that retirement savings were on the rise for most age groups. Among the age groups, all except those age 75 and older had higher balances in 2022 than in any previous year.

Here are the median and average retirement account balances for each age group the Fed surveyed, in 2022 dollars:

Note the large disparity between median and average savings. The median amount — meaning half of that age group had more money and half had less — gives you a more accurate picture of where you stand. It can also help you evaluate your savings goals. If you’re way below the median, perhaps you’ve underestimated how much income you’ll need. If you’re way above the median, it might be a sign that you’re saving more than you need to.

How Much Do I Need To Retire?

Ask any group of experts how much you need to retire, and you’ll get many different answers, based on a variety of assumptions that might or might not reflect your needs. A better approach is to use their general recommendations as a guideline, and then customize the one that makes the most sense for your financial means and your lifestyle.

1. $1 Million

One common piece of advice is that you need about $1 million, but can you retire on $1 million comfortably?

In most of the U.S., yes. GOBankingRates recently compiled data from the Bureau of Labor Statistics’ 2022 Consumer Expenditure Survey, the Missouri Economic Research and Information Center and the Social Security Administration’s Monthly Statistical Snapshot. From this data, they found that the cost of living in only 16 states requires a minimum retirement income of $1 million for a 25-year retirement.

However, American workers might disagree. According to an August 2023 study from Charles Schwab, “Workers now believe they’ll need to save an average of $1.8 million for retirement.” However, just 37% believe they’ll be able to save that much.

2. 10X Your Salary

Another suggestion is to have 10 times your salary saved by age 67, which is the full retirement age for current pre-retirees. Fidelity is one investment firm making that recommendation, based on the assumption that Americans begin saving for retirement at age 25 and save an average of 15% of their income each year. It also assumes the individual’s portfolio is composed of at least 50% stocks and that they’ll retire at age 65.

A change in any of these variables alters the amount you need to save using the 10X guideline. For example, if you work until age 70 instead of age 67, you might only need 8X your salary to retire — unless you plan to travel extensively or move to a place with a higher cost of living, in which case you might want to have 12X of your salary socked away.

3. 4% Rule

The 4% rule says that you can withdraw 4% from your retirement savings each year without depleting your savings in the course of a 30-year retirement. But in practice, 4% only applies to the first year’s withdrawal. After that, you’ll adjust for inflation. If inflation is 3% in the second year, for example, you might withdraw 7% instead of 4%.

As Prudential explains on its financial education blog, the 4% rule assumes that your portfolio contains about 50% stocks and 50% bonds or other fixed-income assets. It also assumes your savings are in a tax-deferred account, such as a traditional IRA or a 401(k), and that you’ll pay income tax on your withdrawals.

To implement the 4% rule, calculate your annual income needs first and then divide that amount by the withdrawal rate. For a 5% withdrawal rate and $50,000 in annual income, for example, you’d need $1 million ($50,000/0.05= 1,000,000).

4. 15% Rule

The 15% rule says that you should save 15% of your annual income for retirement. If that sounds familiar, it might be because it’s one of the assumptions made in the 10X your salary rule. And that assumes you begin saving at age 25.

So, if you’re early in your career, you should be able to simply save 15% per year to build enough savings to get you through retirement. If you’re well above age 25, you’ll have to save significantly more.

The reason 15% is plenty for a young individual is that compound gains will grow their balance exponentially. The longer you wait to start saving, the less compounding will work for you, and the larger contributions you’ll need to achieve the same goal. Wait too long and it’ll be nearly impossible to catch up without a major windfall, such as an inheritance.

5. 80% Rule

The final rule for retirement savings is the 80% rule, or saving enough to replace 80% of your pre-retirement income. So if you currently earn $100,000 per year, this rule says you’ll need $80,000 per year in retirement. As AARP explained, you can get away with less money after you retire because you’ll no longer pay Social Security and Medicare taxes, and you won’t actively be saving for retirement.

As with the 4% rule, you’ll have to do some math to figure out what 80% means in terms of retirement savings. First, figure out what 80% of your income is. Then multiply that amount by the number of years you expect to live in retirement.

How Much Money Do You Realistically Need To Retire?

Retirement planning is about more than just your savings. Consider these additional factors as well.

What Other Income Will You Have?

Retirement savings likely won’t be your sole source of income in retirement. Social Security benefits and other assets, such as CDs, and even equity in your home if you plan to downsize, will also provide you with income in retirement.

How Much Will You Spend?

You can’t anticipate every expense, but factoring in spending gives you a more realistic picture of how much you need to retire.

To get an idea of how much you might spend each year, consider this: In 2022, the most recent year for which annual data is available, household spending peaked at $91,074 per year for the 45-to-54 age group, then dropped to $57,818 year for people 65 and older, according to the U.S. Bureau of Labor Statistics.

The following table shows yearly spending for age groups nearing retirement and already retired.

GOBankingRates’ retirement calculator simplifies the process of estimating your post-retirement income needs. Just enter your current savings, your anticipated Social Security and pension income and your total retirement income goal. The calculator will tell you how much money you’ll need for the number of years you expect to live in retirement.

The calculator is also useful for experimenting with different scenarios to see how your needs might change if you were to save more or less or retire earlier or later. That way, you can adjust your retirement budget for changing circumstances.

Living on Less in Retirement

Here are some ways you can lower your expenses in retirement.

Drive Less or Use Cheaper Transportation

Seniors between 65 and 74 spend an average of $9,550 on transportation costs annually, according to the BLS. If you opt for an economy car, you can save money on gas and on the actual car, because it will cost a lot less than a luxury model. You might also consider using public transportation.

Downsize Your Home

The best places to retire might not be where you lived pre-retirement. Selling a home in California or the Northeast U.S. would enable you to buy something cheaper in, say, Detroit or Philadelphia — and you’d likely have cash left over.

Cut Back on Dining Out and Entertainment

Spending less on things like dining out is an easy way to cut expenses. Be coupon-savvy at the grocery store and buy only what you need. Seek out low-cost activities with a senior discount, or clubs and organizations aimed at your age group.

Avoid Retirement Pitfalls

Now that you have a better idea of what to do to save for your later years, remember to avoid some of the potential pitfalls, like carrying debt or prematurely withdrawing retirement funds.

So how much do you need to retire? Aiming for $1 million — or 10 times your salary — is a great goal to have. But if you retire on less, with a bit of budgeting, you can still have a happy, healthy retirement.

Jamie Young, John Csiszar, Ruth Sarreal, Paul Sisolak and Cameron Cole contributed to the reporting for this article.

Information is accurate as of April 22, 2024.

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