How Much Money Do You Need to Retire?

How much money should you have when you retire? It’s one of the questions that many people ask and still can’t seem to figure out the right answer. If this question has crossed your mind then it’s safe to say that you know how important it is to have retirement savings. If you have started or planning to start putting away money for your golden years, how much do you need to keep?

Although it’s difficult to determine an exact figure, you may still get a good estimate for the ideal amount for your retirement savings. The answer is different for every person since it will depend on how much you’re earning now and what kind of life you plan to live during your retirement years.  

How Much Money Do You Need to Retire Comfortably?

The standard advice is to replace 70% to 90% of your pre-retirement salary with your Social Security benefits, standard pension (if any), and savings. You can also use a retirement planning calculator to determine how much you need to save. If you earn $100,000 annually, you need to save at least $70,000 per year from combined sources (e.g., pension, Social Security benefits, savings, and investment), if you want to live comfortably during your retirement years.

What are the factors you need to consider when you’re trying to figure out how much money you need to retire?

1. Income You Need In Retirement

When calculating how much you’ll need in retirement, you have to consider your income first and make some calculations.

Take your current income and adjust for inflation using an online inflation calculator. Use 80% of that amount as your target income during retirement. The 80% calculation is also referred to as the wage replacement ratio. It’s the standard recommendation provided by many financial planners. 

But if you want to be more conservative, you can save more, between 85% or 90% for your retirement. You can also use the rule of 72. The rule of 72 can help you determine how long you need to double your investment based on the fixed annual rate of return. With this principle, you have to divide 72 by the fixed rate of return to get an estimate of how long it will take for your portfolio’s size to double.

2. Other Sources of Income Aside From Savings

You should also consider your other sources of income aside from your savings. You can factor in your Social Security earnings and pension from your employer. 

For example, you need $100,000 as your annual income during retirement, and your Social Security benefits and pension a year amount to $20,000 and $10,000, respectively. You can safely say that aside from your other sources of income, you need $70,000 in savings more (from other sources, such as your savings and passive income like rent and investments) annually, to meet your target retirement income.

3. Estimate Your Lifespan

Although you can never say how long you’ll live, you can look at the average lifespan of people these days. The average man at the age of 65 can expect to live until 83 years old

Meanwhile, an average 65-year-old woman can expect to live until the age of 85. Unless you have health problems, it’s better to expect to live at least 25 years after retirement and factor that in when determining how much you should save for retirement.

This applies if you plan to retire during the “normal” retirement age. So, if you want to retire earlier, like when you reach your 40s or 50s, you have to consider that too when figuring out how you should save for retirement. 

4. Determine Your Spending Needs

You need to consider your spending needs once you retire. Keep in mind that people have different lifestyles and what you want to do during your retirement years may be different from the others. 

Some people assume that they will spend less in retirement. If you’re one of them, you should replace between 70% and 90% of your pre-retirement salary. You can also opt to spend the same amount when you reach retirement. If that’s the case, you have to replace 100% of your current income. Lastly, if you plan to spend more, you must have a retirement savings goal of 110% of your current income.

Don’t forget to include potential health care expenses. According to Fidelity Retiree Health Care Cost Estimate, a couple may need about $295,000 in savings to cover their health care expenses during their retirement years.

When you retire, you’ll have more time for yourself, which could mean increased spending or living expenses, depending on your lifestyle. During those years that you were still employed, you spend most of your day in the office, which means you have lower utility expenses. But when you retire and if you plan to stay home all day, you need to consider that you’ll be spending more on your heating and cooling bills. So you should factor these into your retirement expenses, too.

5. Use the 4% Rule

A crashing stock market is not the biggest risk to retirees. Many of them fear that they will outlive their retirement savings. How can you make sure that your retirement income will last for at least 30 years? 

You can follow the 4% rule. According to this principle, you have to withdraw 4% of your total retirement assets during the first year of retirement. In the second year, you can increase the withdrawal amount by 3%.

For example, if you managed to save $1 million at the age of 65, you can withdraw 4% of savings, which is $40,000, during your first year of retirement. In the second year, you can add 3% of $40,000, which means you can withdraw $41,200 in year two. Continue the 3% increases annually, and you can expect your savings to last more than 30 years.

Will Your Social Security Benefits and Pension be Enough to Support You When You Retire?

Probably, not. This holds true, especially if you’re still not mortgage-free when you reach your planned retirement age. You’re still paying rent and you cannot factor in the value of your home in your retirement savings because you’re still living in it, which means no income is generated. Plus, there are other expenses that need to be considered, such as insurance. So, you have to back it up with your personal savings. 

You can check the Social Security online calculator to check your benefits. Meanwhile, you can ask your former or current employers for an estimate on pension benefits you may receive upon retirement.

Is it Possible to Work During Retirement So You Can Save Less Now?

You need to be realistic when answering this question. A 2020 Retirement Confidence Survey showed that 71% of American workers expect to work during retirement but only 31% of retirees reported to work during retirement. You may think now that you can still work when you reach your retirement. But once you get to that point in your life, you may realize that it may no longer be possible given your age, skills, competition, and the possible prejudice against age from some employers and colleagues.  

How Do You Save for Retirement Based on Your Age?

If you’re in your 20s:

  • If you’re in your 20s, you’ve recently started working and receiving a regular paycheck. Even if you’re still paying your student loans, don’t forget to save for your emergency fund and retirement.
  • For your emergency fund, you must have at least three months’ worth of your living expenses.
  • You should be enrolled in a retirement plan offered by your employer, which could be the traditional 401(k) or the Roth 401 (k).

If you’re in your 30s:

  • At this point in your life, you’re most likely earning a bit more as you work your way up the corporate ladder. Even though you may still be paying down your debt like student loans, don’t forget to save for your retirement.
  • Aim to have at least six months of living expenses in cash savings as your emergency fund. Put it in a high-yield savings account.
  • Once you’ve reached your desired balance in your emergency fund, you can start making additional savings such as an educational plan if you’re starting a family or for a down payment if you’re planning to buy a house.
  • Check your contribution percentage on your employer-sponsored retirement plan. You have to get your full employer match and you should consider increasing your contribution if your budget allows it.

If you’re in your 40s:

  • You probably have a higher company position now that pays much better than when you were in your 20s and 30s.
  • Check your emergency fund and make sure that you still have at least 6 months’ worth of living expenses saved in your account.
  • Continue saving up for your kid’s educational savings plan.
  • Check your retirement savings and review your contributions, which should have increased along with your compensation.
  • If you think that you’re behind in your savings, evaluate your expenses and find out where you can cut back.
  • You may also consider getting a side hustle for extra cash, which you can add to your savings.

If you’re in your 50s:

  • Check your emergency fund. Make sure to top it up if you used a portion of it to cover unexpected expenses.
  • Find other ways to save like investing in stocks.
  • Check your retirement savings. If you’re behind your goal, you may consider seasonal employment or side hustle for extra cash that you can add to your retirement savings.

What if You Started Saving Late for Retirement?

If you think you’re running out of time, perhaps you’re already in your 40s and 50s, there are still things you can do to save for your retirement. You can max out your contributions to retirement accounts such as 401(k)s or IRAs.

What if You Can’t Save Enough?

Save as much as you can. It’s helpful to create a budget so you have a good idea of your living expenses and how much you can save. Having a budget will reveal your wasteful habits. 

Perhaps you’re spending too much on expensive dinners or you have subscriptions or memberships that you don’t use. Evaluate how you spend your money and get rid of those unnecessary expenses. You may also consider having a side hustle to help you save up for your emergency fund and retirement.

Can You Reduce Your Retirement Savings Goal?

Yes, you can. The most obvious way to reduce your retirement savings goal is to re-evaluate your lifestyle once you retire. If you want to save less then you have to ditch the idea of going on a Caribbean cruise. You can also delay your retirement age. If you plan to retire when you reach 62, you can delay it to 68 so you can postpone the withdrawals from your retirement savings.

When Can You Retire?

The answer to this question depends on several factors. You have to determine your living expenses and the income you’ll collect from other sources such as your Social Security benefits and pensions. Use an online retirement calculator to determine if your planned age of retirement will offer you a comfortable life.


The answer to the question of how to retire in the USA (or anywhere else, for that matter) varies from one person to another. But one thing’s certain. You must set a realistic goal as to how much you need to save for your retirement. You need to consider other factors too such as your expected lifestyle during retirement, your expenses, other sources of income, and your planned retirement age. Keep in mind that there’s no one perfect method for calculating your retirement savings goal. But hopefully, the tips provided here can serve as your starting point to help you with your retirement planning.

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