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How much money do I need to retire?

Are your retirement savings on track? Here are some quick ways to find out.

Key takeaways:

  1. Use the 80% rule to determine how much income you’ll need during retirement.
  2. Use the 4% rule to know how much you need to save to provide that income throughout retirement.
  3. Neither rule is perfect, but they provide a helpful target. Work with a financial professional to develop a retirement plan tailored for you.


When do you want to retire? How do you want to spend your golden years? And how much will you need to pay for those dreams? As with most things in life, it all depends.

It sounds good to set a nice round goal of saving $1 million for your retirement, but that goal doesn’t consider you and your unique needs. When planning, you need to think about both the income you’ll need during retirement, and the saving you’ll need to do between now and then to fund that income.


Use the 80% rule for retirement income

When you’re younger and you don’t have a solid idea of what you want your retirement to look like or how much income you think you’ll need, the 80% rule may be a good starting point to use for planning.

Here’s how it works: take your current income, adjust it for inflation (so that your money has the same purchasing power when you retire), and then multiply that number by 80%—this is the income you may need at retirement.

The 80% part of the rule assumes that you won’t need as much income when you retire. For example, you may have your mortgage paid off, you may be spending less commuting to work, you may pay less in taxes, or you may no longer need to set aside a portion of your income to save for retirement.


Let’s say you are married with a household income of $70,000 and you and your spouse are both 38 years old (in fact, these figures are the current median U.S. salary and age). In 24 years, you’ll be 62 years old—the earliest age at which you can start collecting Social Security benefits.

First, you need to adjust your income for inflation. Today, $70,000 has the same purchasing power as $142,300 after 24 years at 3% inflation.1 Using the 80% rule, multiply $142,300 by 80% and you get $113,840. This is the income you’ll need at retirement if you want your future lifestyle to look like your current one.

Wondering how to adjust your current income for inflation? This calculator can help. (Use the Forward Flat Rate Inflation Calculator.)


Use the 4% rule for retirement savings

So, what does it take to provide yourself with $113,840 worth of income every year during retirement? The 4% rule is designed to help your retirement savings support you throughout all your years of retirement. Theoretically, it says that in your first year of retirement, you can withdraw up to 4% of your portfolio’s value, then every year after that, adjust the withdrawals by the rate of inflation.

The 4% rule can also tell you the total amount of savings you may need at retirement. In this case, divide the retirement income amount you calculated using the 80% rule above by 4%.


Divide the $113,840 retirement income by 4% and you get $2,846,000. This is the amount of savings you will need at age 62 to retire if you want to maintain the lifestyle you have now.

Year two, you’ll withdraw 3% more than the first year’s $113,840, or $117,255 (rounded), and so forth.


Factors that affect how much money you need to retire

Here are other things to consider when deciding how much you need to retire:

  • Don’t forget about the money you’ll get each month from a pension and/or your Social Security.
  • Our example above assumed a retirement age of 62, but in 2021, the average retirement age for men was 65 and for women was 622. Plus, by waiting to retire until age 65, you’ll be eligible for Medicare, and therefore won’t have to pay for medical coverage out of pocket. These savings could be huge!
  • Know that most people don’t spend the same amount every year during their 30+ years of retirement. For example, you may spend more right after retiring if you travel, then less as you spend more time at home, then more as your medical expenses increase.

As you get closer to retirement, you’ll have a better idea of how you hope to spend your golden years. Perhaps you want to spend more money travelling or with hobbies; maybe you’ll want to have purchased a second home or that dream boat; you plan to downsize to a condo or move so you can spend time with the grandchildren. All of these will impact the amount of income you need for retirement.


How much should you save each month?

The short answer? It depends on a lot of factors… how much income you think you’ll need during retirement, how much savings you expect to need, how much you already have saved for retirement, how much you expect to receive in Social Security, when you expect to retire, and other factors.

This is where a financial professional can help you nail down real numbers.


Are you on track? A financial professional can help.

Some people think having $1 million saved for retirement will be enough. It’s a good target for sure, but your real number depends on your current age, your planned retirement age, and how much income you expect to need every year when you’re retired.

No one wants to run out of money during retirement. It’s good to have a goal, but even better to have a target that is specific to you and your needs. If you really want to know how much money you’ll need to retire, it’s important to work with a financial professional. The sooner you start planning, the better you’ll feel about knowing you’ll have enough saved by the time you want to retire.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

1 Assuming an average inflation rate of 3% and using this calculator.
2 What Is The Average Retirement Age? – Forbes Advisor

How much do you need to save for retirement?

A financial professional can put together a retirement savings plan that is specific to your situation. And if the 80% / 4% targets let you know you’re falling short, don’t panic—but don’t delay in putting together a solid financial plan.

Schedule a complimentary, no-obligation consultation with a financial professional at Global Retirement and Investment Services.

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