How Much Do I Need to Retire?

We can’t tell you exactly how much money you’ll need to be prepared for retirement because everyone’s situation and cost of retirement is different.

However, there are guidelines and rules of thumb you can use to estimate your savings rate and target retirement income. For example, two pieces of common advice are to save at least 10 percent of your income while working and withdraw 4 percent from your retirement savings annually during retirement.

There are also milestones that try to simplify the answer, such as having your annual earnings in retirement savings when you’re 30 and six times your annual income in retirement savings once when you’re 55.

But by definition, general guidelines miss the individual nuances that you may want to consider if you're going to be prepared for retirement.

Find your numbers using free retirement calculators

You could hire a financial planner to review your finances and give you retirement-related advice and an estimate of how much money you need to retire. However, you may want to start with one (or several) of the free online retirement calculators.

Many calculators require you to enter at least a few numbers, so you may want to prepare ahead of time. Start by adding up your current assets and debts, including current retirement savings. Also, look up your potential pension income, if you’ll have one, as that could play an important role in your retirement.

Most retirement calculators will also ask you to estimate your Social Security income, which will depend on your 35 highest-income working years. You can use the Social Security Administration’s quick calculator to start. Or, you can use the SSA’s Retirement Estimator to get a more precise number based on how much you’ve paid into the system.

Once you’ve got these basics, try out some of the calculators. There are simple ones, such as those from Vanguard and NewRetirement, that only require a few basic inputs on your part to show your estimated retirement income versus your ideal retired income.

There are also much more complex calculators, such as the free retirement planner from Personal Capital (although, you’ll need to create an account to use it).

You can connect other financial accounts to Personal Capital and have it automatically update your current net worth and projected future investment earnings. You can then add a variety of ongoing or one-time events to customize your retirement plan, such as an inheritance, wedding, travel or down payment on a home.

The results will show several scenarios and the likelihood that each will occur. You can also create several plans with different inputs or expenses to see how life events, savings rates or other decisions could impact your retirement.

How much income will you have during retirement?

While your savings and investments could play a vital role on your retirement income, they’re only part of the equation. Social Security benefits, a pension, continuing to work in some capacity and having income-producing assets (such as a rental unit) can all supplement the money you withdraw from your retirement savings. 

Most of the retirement calculators take all these income sources into account when determining your estimated retirement income. They can then compare this number to how much income you’ll need to maintain your lifestyle. Luckily, it may not be as much as you think.

Retirees may not need as much income because they might not pay as much in taxes, their children could have moved out and they may have fewer debts to repay. Generally, retirees’ spending increase during the first several years, but then it tends to drop below pre-retirement levels going forward.  

Can you lower your cost of retirement?

Even if their cost of living decreases slightly as they age, many people don’t have enough money saved for retirement to maintain their current lifestyle.

However, consider what changes you could make to decrease your cost of retirement. For example, every year there are updated lists of the cheapest places to retire. While moving may not be ideal, the lower expenses could make your retirement years much more pleasant.

Also, even if you decide to stay in the same city, you may be able to downsize your home, get rid of an extra vehicle or find low-cost hobbies to replace more expensive interests.

You can then return to the retirement calculators and see how these changes affect how much money you need to retire comfortably. From there, you can figure out if you’re saving enough, or if you should be taking steps to free up more money and put it into your retirement accounts.