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Retirement Calculator: How Much Money Do You Need To Retire?

5-minute readMay 18, 2021

Answering the question “How much money do I need to retire?” doesn’t have to be overwhelming. While everyone has different ideas of what they want their retirement to look like, it’s useful to consider existing benchmarks to see whether you’re on the right track.

You want to estimate your specific needs and goals. This includes how much you want to spend each month after you retire.

It also depends on when you want to retire. Someone who retires in their mid-40s will need more money than someone who works longer and retires in their mid-60s.

Here are some questions and guidelines on figuring out how much you need to retire.

How Much Money Do I Need To Retire Comfortably?

When saving for retirement, you don’t have to be stringent. It’s important to plan, but you also need to sustain yourself in the here-and-now. Make sure you’re setting aside the right amount of money for down the road, but also have enough to maintain your lifestyle.

Start Where You’re At

Financial experts typically recommend your retirement income should be about 80% of what your income is right before you retire. You won’t know how much you’ll need to retire unless you look at your current salary and adjust it for inflation. You can use an inflation calculator (search for “forward flat rate”), which can be the simplest option, or you can use the rule of 72.

If you take 72 and divide it by the average inflation rate, you’ll get the number of years it takes to double your cost of living. For example, using a 3% inflation rate, it’ll take 24 years for it to double. The most accurate way is to use an inflation calculator.

Let’s say that you plan on retiring 25 years from now and you’ll be making $100,000 by the time you do so. That means you’ll need to have at least $80,000 a year in retirement.

This calculation is known as the wage replacement ratio, and it’s standard in financial planning. Many agree that retirees may not need all their retirement income, but it’s better to plan for comfortable living rather than the bare minimum needed to survive.

Use The 4% Rule

You may have seen this percentage floating around, especially among members of the FIRE movement (Financial Independence, Retire Early). That’s because one of the biggest fears (and risks) for retirees is having their funds run out. Though there’s no guarantee you’ll live to be 100, it’s better to be safe than sorry.

The 4% rule refers to the withdrawal rate you should make from your retirement assets so that your money can last at least 30 years. Some experts recommend being more conservative, withdrawing 3% or 3.5% so you can take increases in inflation into account.

It’s simple to use the 4% rule to calculate how much you’ll need in retirement. If you’ve saved $2 million by the time you retire, it means you’ll be able to withdraw $80,000 each year. To put it another way, if you want to be able to spend $80,000 per year, you’ll need to save $2 million.

Remember that the above calculations don’t account for other sources of income like pensions, Social Security or part-time employment. Factors like your health and your post-retirement plans can also have an impact on what your financial needs will be.

For example, if you want to travel or take up hobbies, you’ll need to save more than what the base-level calculation tells you.

How Much Do I Need To Save For Retirement By Age?

Understanding how much you should save for retirement is helpful, but a number that large can sometimes be intimidating. Instead of getting nervous, you can use your age as a benchmark to see whether you’re on track for your savings goals.

Consider using one of these two systems to help:

25% Savings

Some experts suggest you save 25% of your gross salary each year – by the time you’re 30, you should have been able to save 1 year’s worth of your salary. If you continue to save the same percentage, every 5 years, you’ll be able to save 1 year’s worth of your salary.

That means by the time you’re 65, you will have saved eight times your salary.

Multiples of Your Income

Fidelity, one of the largest brokerage firms in the U.S., suggests you save a certain percentage of your annual salary. You start off at a smaller percentage when you’re younger so by the time you reach retirement age, compound interest will have done its work, helping you achieve a comfortable retirement.

The brokerage suggests you start by saving at least 15% of your gross salary when you’re 25 and investing heavily in more aggressive assets like stocks. By the time you’re 30, you should have saved at least 50% of your salary.

This amount may not be possible for everyone, particularly if you’re late to the investing game, so Fidelity also suggests other savings benchmarks: 

  • 40 years old – 2x your salary
  • 50 years old – 4x your salary
  • 60 years old – 6x your salary
  • 67 years old – 8x your salary

How Much Money Do I Need To Retire At 55?

Leaving the workforce earlier than the standard retirement age might mean you’ll need to save more than normal since you’ll need your money to last longer. For example, instead of being able to rely on the 4% rule, you might need to decrease the amount you can withdraw to 3%.

This means if you want to live off $50,000 annually in retirement, you’ll need to have saved approximately $1.67 million to live comfortably.

Other aspects you need to take into consideration include the fact that you won’t be able to rely on Social Security income until you’re at least 62 – you’ll need to have 7 years’ worth of savings to make up for this amount.

There’s also the fact that you may not be able to withdraw money from retirement accounts like your IRA or 401(k) without being penalized by the IRS. In other words, you’ll need to either have funds in a taxable brokerage account you can draw from or find some other form of income until you’re old enough to withdraw from your retirement account (59.5 years old).

The Bottom Line

At the end of the day, these are merely guidelines to help you make some decisions when it comes to your retirement savings. Each person is different, and it’s difficult to assess your individual needs without understanding your overall financial picture.

This is where a financial professional can help you with figuring out retirement savings and what you can do to get you to your goals. And be sure to look at our Learning Center for more personal finance tips.

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