Determining how much money you need to retire comfortably is a very personal calculation that depends on your unique circumstances and lifestyle preferences. However, there are some general guidelines that can help give you a target number to aim for.
What Does “Comfortable” Mean?
When thinking about how much you need to retire, the first step is defining what a “comfortable” lifestyle means for you. This will differ for everyone based on factors like:
- Where you want to live – Higher cost of living areas require more savings
- Your healthcare needs – Chronic health issues can add significant costs in retirement
- How much you plan to travel or pursue hobbies
- Whether you have other income sources besides retirement savings
- If you anticipate supporting any family members financially
In general, you want your retirement income to cover basic living expenses with some extra cushion for unexpected costs and discretionary spending money for leisure activities you enjoy.
Rules of Thumb for Retirement Savings
While your specific number will depend on your situation, there are some ballpark figures that can serve as a starting point:
- Aim to replace 70-90% of your pre-retirement income. So if you make $100,000 before retirement, you’ll want $70,000-$90,000 per year from your retirement savings and other income streams.
- Have 10-12 times your ending salary saved. For example, if you make $100,000 in the last three years before retiring, you would aim for $1-$1.2 million saved.
- Save 10-15% of your income each year. Consistently saving in this range from early in your career gives you the best shot at amassing sufficient funds.
These guidelines help provide rough estimates, but you’ll want to use a retirement calculator to look at your specific situation. Input your expected retirement spending, income sources, life expectancy, and other details to get a more accurate target number.
How Much You Actually Need to Retire Comfortably
According to the 2021 Fidelity Retirement Study, the average American believes they need around $1.9 million saved to retire comfortably. However, surveys show that retirees say they actually need closer to $1 million on average.
Here’s a breakdown of how much experts often recommend having saved based on your pre-retirement income:
| Pre-Retirement Income | Recommended Retirement Savings |
|---|---|
| $30,000 | $250,000 – $500,000 |
| $50,000 | $500,000 – $750,000 |
| $75,000 | $750,000 – $1,250,000 |
| $100,000+ | $1,250,000+ |
As you can see, the ranges are wide, and there’s significant overlap. Someone earning $50,000 may need $700,000 if they live in a high cost area and like to travel frequently. While someone earning $75,000 with minimal expenses may be comfortable with $600,000.
Factors That Impact How Much You Need
Beyond your income, here are some of the biggest factors that affect how much you need to retire comfortably:
- When you start saving – Starting early allows more time for compound growth
- Your withdrawal rate – Experts recommend keeping this to 3-4% of your portfolio yearly
- Life expectancy – The longer you’ll live, the more you need saved
- Healthcare needs – Major health issues lead to higher costs
- Long-term care – Can require an additional $100-$150k+ in savings
- Interest rates – Low rates make it harder to grow your portfolio
- Inflation – Erodes the purchasing power of savings over time
- Debt – Entering retirement with debt increases costs
- Supporting others – Like children, parents, or grandkids
- Tax strategies – Certain accounts and strategies reduce your tax burden
How Retirement Savings Translates to Retirement Income
Another helpful way to look at retirement savings goals is to consider the income your portfolio can reliably generate each year. As a simple illustration:
- Having $500k saved could provide $20,000/year income (4% withdrawal rate)
- $750k saved could provide $30,000/year
- $1 million saved could provide $40,000/year
- $1.5 million could provide $60,000/year
This demonstrates how different levels of savings translate into potential retirement income. Of course, you also need to factor in Social Security payments, pensions, annuities, or other income streams.
The Impact of Increased Lifespans
One important consideration is that life expectancies have increased significantly over time. For example, in 1960 the average American man who made it to 65 could expect to live to 78. Today, it’s over 84, and continuing to rise.
This means your retirement savings may need to last 20-30 years or more, especially if you retire early. To account for longer timelines, some experts now recommend aiming for closer to 20x your ending salary saved. Having a larger cushion makes it less likely you’ll outlive your money as lifespans expand.
Ways to Boost Your Retirement Readiness
If you’re concerned about having enough saved, here are some strategies that can improve your situation:
- Raise your retirement contributions by 1-2% each year
- Cut discretionary spending to free up more savings
- Invest aggressively early, then get more conservative closer to retirement
- Pay down high-interest debts like credit cards
- Delay claiming Social Security to increase payments
- Shift some savings to Roth accounts to reduce RMDs
- Consider relocating to a lower cost area
- Look for ways to generate additional income
The Earlier You Start, the Better
While how much you need to retire comfortably depends on your specific goals and circumstances, the general guideline is that more is better. The earlier you start saving, the more manageable it will be. If you begin saving 10-15% of your income early in your career, reach your target number will be within reach.
Conclusion
Planning how much you need to retire is an important process that takes careful consideration of your income, expenses, and lifestyle goals. While there are general rules of thumb, running the numbers for your unique situation provides the most accurate target. The key is to start saving consistently as early as possible, and remain diligent. With time and compound growth on your side, reaching a comfortable nest egg is very achievable.