Learn how to estimate how much you need to save for a comfortable retirement and create a plan to get there.
One of the most common questions about retirement is simply: how much do I need? The answer depends on your lifestyle, health, and how long you expect to live. Let us break it down into manageable pieces.
At its simplest, retirement planning involves answering three questions:
Answering these questions helps you estimate your target retirement savings.
A common guideline is the 4% rule. This suggests you can safely withdraw 4% of your retirement savings each year without running out of money for at least 30 years.
To calculate your number, take your expected annual expenses and multiply by 25. For example, if you think you will need $50,000 per year, you would need $1,250,000 in savings.
Example: If you need $60,000 per year in retirement: $60,000 x 25 = $1,500,000 target nest egg. Using the 4% rule, you could withdraw $60,000 annually from this portfolio.
Starting earlier means your money has more time to grow. If you plan to retire at 65, someone starting at 25 has 40 years to save versus 15 years if starting at 50.
Your retirement lifestyle dramatically affects how much you need. Someone planning to travel extensively will need more than someone planning to stay local.
Include any expected Social Security benefits or pension income when calculating your target. These can reduce how much you need to withdraw from savings.
Healthcare is often the largest expense in retirement. Factor in Medicare premiums, supplemental insurance, and potential long-term care costs.
Plan for a long life. A 65-year-old couple has a 50% chance that one will live to age 90 or older. Planning for a 30-year retirement is wise.
Our free retirement calculator helps you estimate how much you will have at retirement based on your current savings, monthly contributions, and expected returns.
It also shows how long your savings will last based on your expected retirement expenses. This helps you adjust your savings rate or retirement age accordingly.
Start with your current expenses and adjust for retirement. Consider which expenses might go up (healthcare) and which might go down (commuting, mortgage if paid off).
Subtract expected Social Security and pension income from your expenses. Multiply the remainder by 25 to get your target savings.
Use a retirement calculator to see how much you will have at your planned retirement age. Subtract this from your target to find your savings gap.
Options include saving more each month, working longer, reducing retirement expenses, or some combination of these.
Use our free retirement calculator to see how much you need and how long your savings will last.
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