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How much do I need to retire?

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Westend61/Getty Images/Westend61

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 seven to eight times your yearly income.

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 83% of people ages 45–59 have some retirement savings, but fewer feel confident that they are on track for retirement. If you haven't been prioritizing saving for retirement or feel far off from meeting your goals, don't panic. Now's the time to take control and set a goal for saving.

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 retirement income calculator. Plugging in the basics of how much savings you have now, your expected contributions going forward and your yearly salary can help you see what retirement saving looks like and how long that money would last.

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 4% rule, which gave an option for how much to withdraw each year of retirement so that your savings would last. Be aware that the 4% rule doesn't work for every expense scenario, market condition or asset allocation, but it can be a good way to estimate ahead of time. Once you're in retirement, you may want to talk with your financial advisor about each year's annual withdrawal rate based on that specific year's factors.

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 lifestyle you imagine living. Here are a few elements that might impact your everyday retirement budget.

Factors that can bring down your costs 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 long-term needs.

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 investment risk tolerance over the years. This will impact how much of a return you can expect, one of the key factors you'll input into the retirement calculator.

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 financial advisor can help you talk through its implications on your retirement income plan.

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 financial advisor. Remember that your own number will also look different from the others around you. A financial advisor can work in specifics for your situation—like how Social Security and any other guaranteed income sources should be factored in.

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Thrivent financial advisors and professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.

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