The amount you need to retire is a highly personal calculation that weaves in both the lifestyle you envision, the amount you’ve saved, your Social Security benefit, and a number of other factors.
While there are formulas and calculators that can help you determine a basic amount that you need to save for retirement, these are just ballpark numbers. In some cases it can be useful to game out a couple of different scenarios — using different assumptions about where you might live, whether you’ll work part time or travel, and so on.
This can help you, and your spouse or partner, decide on the retirement path that suits you best. And this can help you make the best estimate of how much you need to retire.
This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.
How Much Do You Need to Save for Retirement?
There isn’t a single number you need to retire that will work for everyone. As mentioned, every person’s situation is unique and comes with its own complications and assumptions for what retirement might mean.
Fidelity’s research shows that if a 30-year retirement is planned and annual spending is expected to be 4% to 5% of savings, adjusting for inflation, there is about a 90% chance of not running out of money.
The exact percentage of the retirement calculator formula can depend on the age of retirement and life expectancy. That number changes if a person retires at age 60 and plans a 35-year retirement — about 4.3% could be withdrawn per year to retain that 90% likelihood of financial security.
To break it down, $1 million in savings is a fair number to get through the retirement years.
Source: Fidelity
That said, there are a few rules of thumb you can consider.
The 80% Rule
One basic guideline is known as the 80% rule, which says you should aim to replace 80% of your pre-retirement income.
This is only meant as a guideline, but it has been called into question by some experts as being too high. As the thinking goes, your expenses decline in retirement, largely because you’re no longer saving for retirement, nor are you commuting.
Others have said workers should aim to replace 100% of their pre-retirement income, owing to inflation.
The 4% Rule
Another popular rule of thumb is “the 4% rule“, which talks about how much money you’ll need to retire. The 4% rule says that you can take your projected annual retirement expenses and divide by 4% (0.04) to know how much money you’ll need before you can safely retire.
If you project annual expenses of $50,000, you’ll need $1,250,000 (which is $50,000 divided by 0.04). Then each year you could withdraw 4% (indexed for inflation), which would come mostly if not completely from the appreciation of the portfolio.
Since the 4% rule was introduced in 1994, other advisors have said that it is not conservative enough and have suggested 3.33% or 3.5% might be more appropriate.
Retirement Savings Targets by Age
If you’re just starting out in life, you might think that with retirement decades away that you don’t have to worry about it. But the sooner you start saving for retirement, the better off you’ll be. Here are a few rough targets for how much you should have saved at certain ages:
| By Age… | You should target saving this much |
|---|---|
| 30 | 1X your salary |
| 40 | 3X your salary |
| 50 | 6X your salary |
| 60 | 8X your salary |
| 67 | 10X your salary |
These should only be considered as very rough guidelines — for more detailed retirement targets, consider working with a financial advisor.
💡 Quick Tip: Did you know that opening an investment account typically doesn’t come with any setup costs? Often, the only requirement to open an investment account — aside from providing personal details — is making an initial deposit.
Factors to Consider When Calculating How Much You’ll Need
When considering how much you’ll need to retire, here are a few things that you will want to keep in mind:
Current Income
Some financial planners suggest that you base your retirement projections on your pre-retirement income. You might use 75% or 80% of your current income as a basis for estimating how much money you’ll need as retirement.
For a more detailed look, go through your budget and see how each type of expense will change in retirement. You may need more or less income than you think.
Retirement Lifestyle Goals
Another thing to think about is how your lifestyle overall might change in retirement. Consider whether you plan to move or make other big lifestyle changes that can impact both expenses and taxes. While some costs may go down (such as if you pay off the mortgage on your home), others might go up as you change your lifestyle.
As one example, if you want to explore the world or visit grandchildren, your travel budget may drastically increase from pre-retirement levels.
Recommended: 5 Typical Retirement Expenses
Social Security
Social Security is a government program intended to help with income in retirement. The Social Security Administration can provide an estimate of what your benefit might be — check ssa.gov — but keep in mind that the amount of your monthly check depends on your lifetime earnings history, and how old you are when you start claiming Social Security.
Although you can start taking Social Security at age 62, you would get a reduced amount. For every year you wait, you get about 8% more. If you wait until age 70 before starting your Social Security benefits, you’ll get the maximum amount.
Social Security can be complicated, but it’s one of the few steady income streams workers can count on, so be sure to understand how Social Security works.
Healthcare
Healthcare can be a major cost in retirement, especially if you retire early. At age 65, you will qualify for Medicare, but if you retire before then, you’ll need to make sure that you have a plan for covering healthcare costs in retirement. Even after qualifying for Medicare, you may still have significant health-related costs, depending on your specific medical situation.
Start Saving for Retirement as Early as Possible
While retirement may seem like forever away, the truth is that it will be here before you know it. The earlier you start saving for retirement, the easier it will be for you. This is primarily due to the magic of compound growth. The longer your money is working for you, the more time the earnings have to compound and grow.
💡 Quick Tip: Did you know that a traditional Individual Retirement Account, or IRA, is a tax-deferred account? That means you don’t pay taxes on the money you put in it (up to an annual limit) or the gains you earn, until you retire and start making withdrawals.
Ways to Invest for Retirement
You have many different ways that you can invest and save for retirement. Many employers have 401(k) accounts that give tax advantages for saving for retirement. On top of that, some employers offer matching funds when you contribute to a 401(k) account.
Another option can be an Individual Retirement Account (IRA), which you can set up on your own. There are two main types: a traditional IRA and a Roth IRA.
While both types let you contribute up to $6,500 yearly (as of 2023), with an additional catch-up contribution of $1,000 for those over age 50, one key difference is the way the two accounts are taxed: Traditional IRAs let you deduct your contributions up front and pay taxes on distributions when you retire, whereas Roth IRA contributions are not tax deductible, but you can withdraw money tax-free in retirement.
Closing the Gap Between Current Savings and Your Goal
If you realize that you have a gap between your current savings and where you think you need to be when you retire, it’s important to make a plan to address the gap. If you choose to do nothing, the gap will only grow wider.
You have three main ways to close the gap — either start saving more of your money or find a way to increase the returns your investments are earning. You can also consider making different choices about the sort of retirement you want.
The Takeaway
It would be nice if there was a simple way to calculate the exact amount you need to retire on. Instead, think of your retirement amount as an ongoing series of calculations that you’ll refine as you get older, and as your thinking gets clearer.
There are some things you can predict, but many that you can’t — including the state of your health (or your spouse’s), the turns the market might take, or a change in priorities. All you can do is start early and save steadily for the retirement you hope to have one day.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
How much money do you need to retire with a $100,000 salary?
In order to determine how much money you need to retire with a certain amount of salary, you’ll need to make a few assumptions. For example, you can estimate that you’ll need 75% of your pre-retirement income after you retire and follow the 4% rule. That would say you’ll need $1,875,000 to be able to retire. If you change your assumptions, it will also change your numbers.
How can I catch up on retirement savings if I’m behind?
There are two main ways to catch up on retirement savings if you’re not meeting the targets for where you want to be. The first is to increase the amount of money you’re saving each month. Upping your contributions can help close your retirement savings gap. The other would be to increase the investment returns that you are earning, though that may also come with increased risk or volatility.
Should I factor in Social Security when determining how much retirement income I’ll need?
It may not be prudent to count on Social Security as a major contributor to your retirement amount. Current projections indicate that the government may not be able to fully fund Social Security payments at some point in the future. It’s difficult if not impossible to predict what the impact might be down the road, especially if it’s still decades until your retirement date.
Can you comfortably retire with $1.5 million?
Deciding whether $1.5 million is enough for you to comfortably retire depends a lot on your standard of living and annual retirement expenses. Using the 4% rule says that a nest egg of $1.5 million would give an annual amount of $60,000. Depending on the cost of living where you live and your own standard of living, that may be enough to retire comfortably.
Photo credit: iStock/Yaroslav Astakhov
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