Whether you're daydreaming about retirement in the far-off future or really starting to solidify your retirement plans, you may be asking yourself how much you need to retire. Targeting a reasonable amount for your situation can help you make smart choices in the years leading up to retirement.
Let's look at how much you may need to retire, and what factors impact the goal you set.
How much should you save for retirement?
The recommended amount to save for retirement hovers around a minimum of
For someone making $50,000 a year, that would mean saving between $350,000 and $400,000 in retirement accounts. A person bringing in $150,000 a year would want to save between $1,050,00 and $1,200,000.
To build up to this amount, it helps to set goals for intermediate savings milestones. For example:
In your 30s:It's recommended to have at least one year's salary saved up. In your 40s:Saving up to three years' salary is a good place to be. In your 50s:Aim to save five to six times your annual salary. In your 60s:Closing in on the target of at least seven to eight times your salary is ideal.
If you aren't quite hitting these milestones though, you're not alone. Research from the Federal Reserve found that
A retirement planning calculator can help
The seven-to-eight-times-your-salary number may seem a little nerve-wracking—either too low or too high compared to what you originally expected. A great way to personalize that number is by using a
Read on for additional tips to help you use the retirement income calculator:
Start by inputting your current annual income & savings rates
Your annual income is the basis for at least two elements of your retirement savings plan:
1. You are limited by your income when it comes to how much you can save. If you have so many expenses right now that you cannot save any money month-to-month, your priority may be to reduce spending or increase your income.
2. Your annual income gives you insight into what you might need to live on in retirement; most likely your lifestyle will change some, but as you saw above, the calculations for the amount to save for retirement are often expressed in terms of saving multiples of your yearly income.
The amount you're saving per month is also key. After inputting your current saving amount into the calculator, consider experimenting with $50 more or $100 more per month: how much impact does it have on your long-term savings? You'll see how even small shifts in long-term savings habits can have a big impact.
Understanding your "withdrawals for retirement" rate
Each year, your portfolio potentially generates a rate of return, somewhere between 2% and 10% depending on how it is invested. During retirement, you'll be withdrawing portions of your savings and will want to evaluate what is a reasonable withdrawal amount each year that allows your savings to keep growing, ideally, and also last as long as you'll need them. In the retirement calculator's graph, it shows your annual withdrawal as a dollar amount, but you also may see it expressed as a percentage of your total savings in other places.
A long-discussed way to calculate withdrawals was the
How much will you realistically spend in retirement?
A big part of your retirement calculations is simply how much you intend to spend. A good starting place is to consider how much you typically spend now, and then consider which expenses are likely to go up or down when you are no longer working.
Everyone's retirement lifestyle will look different. For instance, some people choose to devote many hours to an organization as a volunteer, which can result in a smaller necessary budget. Others may want to plan their budget around ongoing monetary gifts to the organizations that matter to them. In either case, making the world a better place requires a bit of planning to see your goals achieved.
To estimate your expenses as closely as possible, consider drawing up a sample budget that incorporates not just how you live right now but how your retirement spending might look different in the future. For instance, you can plan for a higher or lower budget in retirement based on the
Factors that can bring down your costs in retirement
- You intend to continue running a business or
working part-time in retirement.
- Your mortgage is paid off by the time you retire.
- You intend to spend much of your leisure time in low-cost ways, such as spending time with family, gardening or exploring nature in your local community.
- You have comprehensive insurance that can help offset medical expenses—from health care coverage to additional solutions that can help with
Factors that can increase your spending in retirement
- You intend to travel extensively or take up new hobbies.
- Rising costs for needs like gas, utilities and health care.
- You're moving to a high-cost-of-living area.
- You want to help family members pay for college, home down payments or other major gifts.
- The cost of medical insurance to supplement Medicare.
How investment risk tolerance affects your retirement plan
One additional consideration is the evolution of your
Traditional wisdom says that maximizing growth is valuable earlier in life, when you have a long time horizon before you intend to use your retirement savings. It's common to then move funds into more stable, lower-risk investments closer to retirement—even if the portfolio maintains some higher-risk, higher-return investments to continue growth. If your own risk tolerance is different from the average person your age, a
Should you adjust your savings strategy?
Asking one seemingly simple question—"How much do I need to retire?"—can change the trajectory of your retirement savings. Evaluate how your savings look compared to the decade milestones and your own retirement calculator results. From there, you can make the changes that make the most sense for your goals.
Making the most of the data from the calculator is easier with a