How Much Do I Need to Retire? A Complete Guide to Retirement Planning (2024)

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  • Target savings will vary for each future retiree, depending on one's expenses and current salary.
  • Many advisors recommend saving 15% of your earnings annually or even more if you are getting a late start.
  • Multiple income streams and a conservative withdrawal rate ensure you don't run out of money.

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Acquiring adequate retirement savings doesn't happen overnight. For most people, saving enough for retirement requires decades of dedication and strategic financial planning. But how much do you actually need to save to ensure a comfortable retirement?

Here are the best retirement plans, calculators, investment strategies, and tips you can use to ensure your retirement savings plan is on track.

Understanding retirement needs

Assessing your retirement needs

Unfortunately, there's no general number to aim for when saving toward retirement. Your target retirement savings goal will differ greatly from your siblings', neighbors', and even your coworkers' goals since the amount you'll need largely depends on personal factors.

However, one rule of thumb applies to everyone: The sooner you start saving, the less effort you'll need to put in to reach your goal, and the better-positioned you'll be later in life.

According to the 2024 MassMutual Retirement Happiness Study, the average age for retirees in the U.S. is 62. If you were to live to 85, this means you'd need enough money to cover all your expenses (and retirement goals) for at least 22 years. Economic factors like inflation will also certainly impact your savings over time.

Estimating your retirement expenses

Understanding what you expect retirement to look like will help determine how much you'll need to fund that lifestyle. If you plan to travel the world in luxury, your budget will differ from someone wanting to bird watch from the backyard each morning.

In retirement, your savings will cover many of the same expenses you had pre-retirement. This includes costs like food, housing, transportation, clothes, gifts, utilities, insurance (including a health plan), and travel.

In most cases, these expenses won't change much from pre- to post-retirement, which makes creating a budget easier. But if you have big plans for your retirement years (moving to a new state or country, buying a bigger home, increasing travel, etc.), you must calculate how much your new standard of living will cost.

How much do you need to retire comfortably?

The first step to adequately saving for retirement is to determine how much you'll need. This means analyzing current and future expenses and deciding how much you can afford to put away each month. You may also want to use a number of different savings and investment vehicles or passive income streams.

Financial advisors suggest saving around 10 times your current salary by the time you reach retirement age. Before you retire, you should aim to reduce your annual expenses as much as possible, including paying off existing debt. This can help stretch your retirement savings for even longer.

As always, it's wise to consult with a trusted financial planner to help you determine your unique needs and retirement savings strategy.

How much to save for retirement based on your age

One way to see if you're on track to reach a comfortable retirement savings is to aim for a multiple of your current annual earnings. This serves as a rough estimate so you can get a better sense of your situation. Remember that theamount of savings required to ensure a comfortable retirement varies according to your projected retirement costs and even the specific investments you choose for your retirement portfolio.

According to Fidelity, here's how much you should have saved up each decade to meet your retirement goals:

Age

Annual salary allocated for retirement

30

1-2 times your starting salary

40

3-4 times your starting salary

50

6-7 times your starting salary

60

8 times your starting salary

67

10+ times your starting salary

Financial advisors recommend dedicating 15% of your annual income toward retirement. However, depending on your retirement goals, financial obligations, and current assets, you may need to save even more.

Building your retirement savings

Types of retirement accounts (401(k), IRA, etc.)

There are multiple savings vehicles and income streams to consider for building your nest egg. These can affect how much you need to save today, depending on which sources of income are available to you.

Some of the most popular types of retirement accounts include:

  • 401(k) plans: Employer-sponsored investment vehicles with compounding power and tax advantages to help you grow your nest egg steadily over time. Money in a 401(k) can be invested in various securities, and your contributions may even be matched by your employer, amplifying your efforts. Funds can be distributed without penalty beginning at age 59 ½, or earlier with certain exceptions.
  • IRAs: IRAs are retirement accounts individuals open through major banks, credit unions, and other financial institutions. The best IRA accounts include traditional, Roth, SEP, and SIMPLE IRAs. IRAs have the same tax advantages as 401(k)s but offer more flexibility over how your funds are allocated.
  • Traditional pension plans: Traditional pensions are another employer-sponsored investment vehicle certain businesses offer. With a pension, your employer is responsible for contributing and investing the funds in your account. The amount contributed is determined by employee earnings and years at the business.

Outside of savings accounts, other ways to generate income during retirement include:

  • Social Security benefits: Social Security is a government program that provides individuals with monthly retirement and disability benefits. You can opt-in to start receiving Social Security benefits as early as age 62, but you'll receive lower payments. Financial experts recommend delaying Social Security until you reach full retirement age (age 70).
  • Annuities: Annuities are another retirement income source to consider. They're offered by insurance companies and act as a long-term investment vehicle. After purchasing an annuity — either with a lump sum or periodic purchase payments — you will receive regular payments over the course of your retirement.

Adjusting for inflation, lifestyle, and healthcare costs

Planning for inflation in retirement

Remember to consider inflation and its impact on your savings. For instance, in 2024, there have been inflation rates of 3%, following the 3.3% increase in 2023 and the high 6.5% rate in 2022. Generally, you should account for inflation of approximately 2% per year.

However, certain economic, political, or natural disasters can cause unexpected spikes in inflation. In those cases, you may experience significant financial losses that require you to permanently or temporarily adjust your lifestyle and budget. One of the best ways to hedge against inflation and market downturns is by continuing to invest after retirement.

Healthcare costs and long-term care planning

Try to account for potential unexpected expenses, such as medical care for you and your spouse or even financially helping a child or grandchild.

"The most common expense that a retiree can ignore (or forget to budget for) is end-of-life expectancy expenses," says Jim Ludwick, a CFP and member at Garrett Planning Network. "This includes caregivers coming to your house, going into assisted living, or skilled nursing. Those are very expensive parts of people's lives. And a lot of times that can eat up quite a bit of savings if it goes on for an extended period of time."

Downsizing and lifestyle adjustments

When planning your retirement lifestyle, consider where you want to live. You may want to downsize depending on your preferred lifestyle, savings amount, and priorities. That said, your priorities may be buying your dream retirement home or moving to a certain location. In this case, be sure that you factor those larger expenses into your budget.

Retirement planning general rules of thumb

While everyone's situation and needs will differ, there are a few primary rules of thumb that most financial advisors follow, which you should consider when determining how much to save for retirement.

Retirement income as a percentage of pre-retirement income

Many financial professionals recommend that you account for between 70% and 80% of your pre-retirement income each year in retirement. This means that if you currently earn $60,000 per year, you should plan to spend between $42,000 to $48,000 annually once you retire.

This isn't a set rule for everyone, and you may need to even account for more savings. "Many people need to have income streams (or savings and investments) cover 80%, 90%, or even 100% of their pre-retirement budget," Ludwick says. It all depends on your specific expenses now and in retirement.

Saving 15% of your earnings every year

If you start saving for retirement early enough, an annual savings rate of 15% may be sufficient to meet your goals. If you're off to a late start, you may need to save a lot more each year to catch up.

"As you get older, the amount needed for savings to reach the same end goal roughly doubles every 10 years," says Tolen Teigen, chief investment officer for FinDec. "So, if someone waits ten years to start saving, instead of 30, they are now 40. Instead of 8% to 10% annually, they are now looking at 16% to 20% saved to reach the same end number."

Saving 10 times your income by retirement age

As mentioned above, many financial advisors and firms like Fidelity recommend having approximately 10 times your annual salary saved by the time you reach retirement age. While this may not be exactly what you need, it's a good target to keep in mind as you go. You can always adjust it depending on your projected needs in retirement.

The 4% withdrawal rule

Many retirees are concerned about running out of money once they reach retirement. The 4% rule may be a good guideline to avoid this. While many factors can affect the actual drawdown process, the 4% rule can be a good place to start if you want to avoid running out of money.

This rule states that retirees can withdraw up to 4% of their retirement savings in year one of retirement. So, if you have $2,000,000 in retirement savings, you would withdraw $80,000 that first year. In year two, you would adjust that $80,000 for inflation and withdraw that amount from your savings.

Keep in mind that while the 4% rule is standard, some financial advisors say your actual withdrawal percentage could be anywhere from 3% to 5%.

Seeking professional advice when retirement planning

There is no one-size-fits-all approach to saving for retirement. Everyone's needs will be different, and so will their approach to saving, including when they start and how much they can set aside each year. Consulting with a certified financial planner or other retirement expert is the best way to understand your unique needs.

"Planning ahead and checking in on your efforts" is key to saving enough for the retirement years, Ludwick says."It's dangerous when you're 75 and realize you're running out of money and you have to move in with a younger sibling or something."

His advice? "If you want to stay independent, do your homework ahead of time. Think about all those things that could possibly happen. If they don't happen, you're lucky … and your kids and grandkids can have a nice gift that you leave behind."

FAQs

How do I calculate how much I need to retire?

You can calculate how much you need to retire by assessing your expected expenses, considering your desired lifestyle, current expenses, projected inflation, and healthcare costs. Business Insider's free retirement calculator can help you see if you're on track to secure a comfortable retirement. You can also use other rules of thumb, such as having an annual savings rate of 15%.

What is the 4% rule in retirement planning?

The 4% rule in retirement planning suggests withdrawing 4% of your retirement savings each year to prevent you from prematurely running out of money for at least 30 years. It's a general guideline to help estimate how much you need to save. However, some advisors recommend more or less than that rate.

How can I maximize my retirement savings?

You can maximize your retirement savings by regularly contributing to tax-advantaged retirement accounts like 401(k)s and IRAs to maximize employer matching contributions, investment opportunities, and compound interest. Generally, it's best practice to max out your retirement accounts first. Also, adopt a diversified investment strategy for greater portfolio growth and risk management.

When should I start planning for retirement?

The sooner you start planning for retirement, the easier it will be to compound your savings and reach your goals. Starting in your 20s and 30s allows more time for your investments to grow. It's still possible to catch up if you start in your 40s or 50s by saving more aggressively and adjusting your strategy, but it will be generally more stressful.

What are some common mistakes to avoid in retirement planning?

Common mistakes to avoid in retirement planning include underestimating expenses, waiting to start saving, relying too heavily on Social Security, failing to diversify investments, spending too quickly, and not accounting for healthcare costs and inflation. The best way to avoid these common mistakes is by creating a thorough financial plan and consulting a financial advisor.

Tessa Campbell

Investing and Retirement Reporter

Tessa Campbell is an investing and retirement reporter on Business Insider’s personal finance desk. Over two years of personal finance reporting, Tessa has built expertise on a range of financial topics, from the best credit cards to the best retirement savings accounts.ExperienceTessa currently reports on all things investing — deep-diving into complex financial topics, shedding light on lesser-known investment avenues, and uncovering ways readers can work the system to their advantage.As a personal finance expert in her 20s, Tessa is acutely aware of the impacts time and uncertainty have on your investment decisions. While she curates Business Insider’s guide on the best investment apps, she believes that your financial portfolio does not have to be perfect, it just has to exist. A small investment is better than nothing, and the mistakes you make along the way are a necessary part of the learning process.Expertise:Tessa’s expertise includes:

  • Credit cards
  • Investing apps
  • Retirement savings
  • Cryptocurrency
  • The stock market
  • Retail investing

Education:Tessa graduated from Susquehanna University with a creative writing degree and a psychology minor.When she’s not digging into a financial topic, you’ll find Tessa waist-deep in her second cup of coffee. She currently drinks Kitty Town coffee, which blends her love of coffee with her love for her two cats: Keekee and Dumpling. It was a targeted advertisement, and it worked.

Stephanie Colestock

Stephanie Colestock is a DC-based freelance writer, with a passion for all things finance. Her areas of expertise include retirement, investing, real estate, and getting out of debt. In addition to Insider, you can find her work on MSN, Fox Business, Yahoo! Finance, Investopedia, Credit Karma, and more. She can be reached through her website or on Twitter @stephcolestock.

How Much Do I Need to Retire? A Complete Guide to Retirement Planning (2024)

FAQs

How Much Do I Need to Retire? A Complete Guide to Retirement Planning? ›

Many financial professionals recommend that you account for between 70% and 80% of your pre-retirement income each year in retirement. This means that if you currently earn $60,000 per year, you should plan to spend between $42,000 to $48,000 annually once you retire.

How much money will you need for retirement which answer is the most correct answer? ›

Key takeaways

Fidelity's guideline: Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. Factors that will impact your personal savings goal include the age you plan to retire and the lifestyle you hope to have in retirement.

What is a sufficient amount of money to retire with? ›

By age 40, you should have accumulated three times your current income for retirement. By retirement age, it should be 10 to 12 times your income at that time to be reasonably confident that you'll have enough funds. Seamless transition — roughly 80% of your pre-retirement income.

How much does Dave Ramsey say you need to retire? ›

Some folks will need $10 million to have the kind of retirement lifestyle they've always dreamed about. Others can comfortably live out their golden years with a $1 million nest egg. There's no right or wrong answer here—it all depends on how you want to live in retirement!

How many people have $1,000,000 in retirement savings? ›

You're not alone if your retirement account balances are far from the $1 million mark. While many people may aim for that goal, most don't reach it. Employee Benefit Research Institute (EBRI) data estimates that just 3.2% of Americans have $1 million or more in their retirement accounts.

How much money do you need to retire comfortably at age 65? ›

More? Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. This means that if you earn $100,000 per year, you'd aim for at least $80,000 of income (in today's dollars) in retirement.

At what age can you retire with $1 million dollars? ›

Retiring at 65 with $1 million is entirely possible. Suppose you need your retirement savings to last for 15 years. Using this figure, your $1 million would provide you with just over $66,000 annually. Should you need it to last a bit longer, say 25 years, you will have $40,000 a year to play with.

What is the new magic number for retirement? ›

I say “magic” (tongue in cheek) because if you put 10 people in a room, you'll get 10 different opinions about how much you should save for retirement. And this estimate is no different. Northwestern Mutual surveyed 4,588 adults and found: The new “magic” number for a comfortable retirement is $1.46 million.

What is the average 401k balance for a 65 year old? ›

Average and median 401(k) balances by age
Age rangeAverage balanceMedian balance
35-44$91,281$35,537
45-54$168,646$60,763
55-64$244,750$87,571
65+$272,588$88,488
2 more rows
Jun 24, 2024

How much does the average person retire with money? ›

Here's how much the average American has in retirement savings by age
Age RangeMedian Retirement Savings
45-54$115,000
55-64$185,000
65-74$200,000
75 or older$130,000
2 more rows
May 5, 2024

How much does Suze Orman say you need to retire? ›

When asked what a safe amount would be, she explained that it would be in the millions but depends on several factors, such as where you live, your expenses, and whether you own a home outright. She believes the amount you'd need to retire early would be closer to $5 or $10 million.

What is the $1000 a month rule for retirement? ›

According to the $1,000 per month rule, retirees can receive $1,000 per month if they withdraw 5% annually for every $240,000 they have set aside. For example, if you aim to take out $2,000 per month, you'll need to set aside $480,000. For $3,000 per month, you would need to save $720,000, and so on.

How much nest egg do I need to retire? ›

There's no single correct amount to save for retirement. For example, a $500,000 nest egg may be a good amount for some retirees, while others may need more, depending on where they live and how many dependents they have. If you want to figure out what size your nest egg should be, a retirement calculator can help.

What is a good net worth to retire? ›

Key Takeaways
GenerationAmount Wanted for Comfortable Retirement
Generation Z$1.63 million
Millennials$1.65 million
Generation X$1.56 million
Baby boomers and older$990,000
1 more row
May 17, 2024

What is the minimum net worth to be in the top 1? ›

There is another level of financial elite within the 1% called ultra-high net work individuals, or UHNWI. In the U.S., it may take you $5.81 million to be in the top 1%, but it takes a minimum net worth of $30 million to be considered among the ultra-high net worth crowd.

What is the top 1 retirement savings? ›

The overall retirement savings for the wealthiest 1% stand at approximately $2.3 million. When considering a broader definition of retirement assets, the figure escalates to $5 million.

How much money should you get for retirement? ›

By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations.

How to figure out how much money you will need for retirement? ›

One rule of thumb is that you'll need 70% of your annual pre-retirement income to live comfortably. That might be enough if you've paid off your mortgage and you're in excellent health when you retire.

How much money will you need for retirement foolproof? ›

Now, how much money will you need for retirement? A good rule of thumb: You want to have at least 80% of your working income when you retire. You want to have enough retirement income to keep you going for 30 years.

Is $5 million enough to retire on? ›

Yes, $5 million is generally considered sufficient to retire at 60 for couples who have an annual post-tax spending of $120,000 on fixed living expenses. This budget should also cover healthcare, travel, occasional vehicle purchases, charitable donations, and potential nursing care costs later in life.

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