How much should I save for retirement? (2024)

Tina Hurley Senior Vice President | Head of Advice, Planning and Product | Citizens

As a strategic partner who helps clients navigate and grow in changing circ*mstances, Tina is responsible for the direct management of the Wealth Management Product Team, including the investment platform and a team of Certified Financial Planners serving all segments of net worth.

How much should I save for retirement? (1)

Key takeaways

  • There is no one-size-fits-all plan when it comes to how much you'll need to retire, but there are a few common benchmarks.
  • Some strategies call for having 10 to 12 times your final working year's salary or specific multiples of your annual income that increase as you age.
  • Consider when you want to retire, goals, annual salary, expected annual raises, inflation, investment portfolio performance and potential healthcare expenses.

Most people look forward to their retirement, dreaming of a lifestyle in which they have the freedom to spend their days as they wish and answer to no one. But how much do you need to retire? Deciding when to do it requires a careful evaluation of your current salary, investments, expected retirement lifestyle and other factors.

Common ways to gauge retirement saving

Everyone has different needs, wants and goals for retirement, so there isn't a one-size-fits-all plan that will work in any scenario. Thankfully, financial professionals have created a few guidelines that have varying pros and cons but at least give more insight than "save as much as you can." These can help you answer the question, "How much do you need to retire?"

  • The final multiple — 10 to 12 times your annual income at retirement age. If you plan to retire at 67, for instance, and your income is $150,000 per year, then you should have between $1.5 and $1.8 million set aside for retirement. A multiple of your final working year's income is appealing to use as a guidepost, because it's easy to calculate, especially the closer you are to retirement when your final annual compensation is easy to estimate.
  • The pacing angle — a multiple of your annual income at your current age. At age 30, some financial professionals suggest accumulating the equivalent of your current annual income. By age 40, you should have accumulated three times your current income for retirement. By retirement age, it should be 10 to 12 times your income at that time to be reasonably confident that you'll have enough funds.
  • Seamless transition — roughly 80% of your pre-retirement income. This amount is based on a safe withdrawal rate (SWR) of about 4% of your retirement accounts each year. The SWR is the amount you can withdraw from your retirement accounts annually to ensure you will have retirement income for approximately 25 years.
  • Join the club — $1 million to $1.5 million. Although $1 million doesn't go as far as it once did, having a net worth above $1 million still puts you in the upper percentage of Americans in terms of net worth. When combined with Social Security, it can help you have sufficient savings to draw from to meet your financial needs in retirement.

Following any of these suggestions can help you plan for the future, but they also oversimplify the calculation because there are so many factors, such as your unique retirement vision, which can affect your estimation.

Factors that affect how much you'll need to retire

You will need to evaluate multiple different factors when estimating your income needs in retirement. Here are some things to consider that will help you answer the question, "How much do you need to retire?"

When do you want to retire?

If you know the age you want to retire, it will help you know how much longer you have to grow your savings. If you plan on retiring early, you'll need more savings to cover the years you aren't working than if you had retired later.

How much do you want to spend in retirement?

It's important to determine your post-retirement spending based on your expected lifestyle. What will you do in retirement? For example, traveling the world would likely cost more than spending most of your time with your grandchildren. Some people retire from their primary careers and then embark on post-retirement careers to supplement their incomes.

What's your salary and what's your expected return on investments?

This will help you determine whether you are on track to meet your retirement savings goals or if you need to increase your contributions or make adjustments to your investments. For your remaining working years, you'll need to estimate your annual salary, expected average annual raises, inflation rates, investment portfolio performance and other factors.

How much are you comfortable pulling from retirement funds?

How much you withdraw from your retirement accounts each year will determine how long your savings will last. Many financial experts recommend a 4% savings withdrawal rate per year to ensure you have enough to last throughout your retirement years. While 4% may a be widely accepted approach, it’s best to determine your withdrawal rate with your financial advisor.

Other factors

Due to the rising costs of health care and long-term care, you should also consider your anticipated health when you retire. According to the Employee Benefit Research Institute, retired couples can expect to need anywhere between $184,000 to $383,000 in savings to be able to mostly cover their medical expenses, depending on their Medicare coverage level. This amount is likely to increase over time. It's also important to consider the status of Social Security since many people use their expected income from Social Security as a starting point for creating a retirement budget.

Using an online retirement calculator

Depending on how these variables look in your situation, it might mean the guidelines won't work for you. But in addition to consulting with financial professionals, you can use an online retirement planning calculator to get a reasonable idea of whether you are on track to be where you want to be.

Retirement calculators can help you answer how much you'll need to defer for retirement, given how much you currently have accumulated, how much you earn, when you would like to retire and even how much you think you'll spend, given your post-work lifestyle. They give you the flexibility to create scenarios, so you can set realistic expectations. Here are two scenarios to help illustrate how they work:

Scenario 1

Monica, age 40, aims to retire at 62 and currently earns a salary of $125,000 per year, of which she consistently sets 15% aside for retirement. As a result of planning for retirement since she began working, she has accumulated $450,000. She estimates she will spend 90% of her final working year's salary while retired.

Using assumptions about average annual raises (2%), investment performance before and after retirement (7% and 4%, respectively), inflation (2%) and retirement length (25 years), our retirement calculator estimates that Monica could retire at 62, and at age 87, she will still have about $581,000 in retirement assets. That means she is likely to have a cushion for her 90s if she is fortunate enough to live that long.

Scenario 2

Steve is 30, earns $80,000 per year and has followed the suggestion of accumulating $80,000 for retirement to date. He has made similar assumptions as Monica, except he defers 10% per year for retirement, wants to retire at 65 and thinks he'll spend 100% of his final year's salary while retired

Unlike Monica, however, Steve's current salary and deferral rate take him to age 87 before he runs out of retirement assets. Since Steve is planning on a retirement length of 25 years, taking him to 90, he'll need to change his plan if he wants to get there with some funds left over.

These are for illustration purposes only and not representative of actual people or outcomes.

The bottom line

So how much money do you need to save for retirement? It's a question that requires a fair amount of introspection and analysis. You can use any of the common suggestions of income multipliers or percentages to guide you, but you'll likely feel you have more certainty if you ask yourself key questions about what you envision for retirement and then set clear goals. With a defined target, you'll know better what you'll need get you there.

When you're making plans for a lifetime, you should have someone you can turn to with questions and guidance. Click the button below to request a call from a Citizens Wealth Advisor who can help you feel made ready for retirement.

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How much should I save for retirement? (2024)

FAQs

How much should I save for retirement? ›

There is a general rule of thumb: When saving for retirement, most financial experts recommend an annual retirement savings goal of 10% to 15% of your pre-tax income.

How much should you have saved for retirement by age? ›

Key takeaways. Fidelity's guideline: Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. Factors that will impact your personal savings goal include the age you plan to retire and the lifestyle you hope to have in retirement.

Can I retire at 60 with 500k? ›

The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.

Can I retire at 60 with 300k? ›

Yes, you can. As long as you live strictly within your means and assuming certain considerations, such as no significant unexpected costs and no outstanding debts.

What is a decent amount of money to retire with? ›

By age 40, you should have accumulated three times your current income for retirement. By retirement age, it should be 10 to 12 times your income at that time to be reasonably confident that you'll have enough funds. Seamless transition — roughly 80% of your pre-retirement income.

Can I retire at 62 with $400,000 in 401k? ›

You can retire a little early on $400,000, but it won't be easy. If you have the option of working and saving for a few more years, it will give you a significantly more comfortable retirement.

Can I retire at 50 with 300k? ›

Let's walk through the scenario. With $300,000 planned for your use as a retiree, a retirement age of 50, and an anticipated life expectancy of 85 years, you need that money to last you 35 years. This should mean that your yearly income is around $8,571, and your monthly payment is around $714.

What is the average 401k balance for a 65 year old? ›

$232,710

Is $1500 a month enough to retire on? ›

While $1,500 might not be enough for non-housing retirement expenses for many people, it doesn't mean it's impossible to stick to this or other amounts, such as if you're already retired and don't have the ability to increase your budget.

How long will $1 million last in retirement? ›

Around the U.S., a $1 million nest egg can cover an average of 18.9 years worth of living expenses, GoBankingRates found. But where you retire can have a profound impact on how far your money goes, ranging from as a little as 10 years in Hawaii to more than than 20 years in more than a dozen states.

What is a comfortable retirement income? ›

The definition of a comfortable retirement differs from person to person and depends on things like the number of holidays you plan to take each year. However, some experts have suggested you could maintain a comfortable lifestyle with a pension income between half and two thirds of your final working salary.

How long will $300,000 last for retirement? ›

How long will $300,000 last in retirement? If you have $300,000 and withdraw 4% per year, that number could last you roughly 25 years. That's $12,000, which is not enough to live on its own unless you have additional income like Social Security and own your own place. Luckily, that $300,000 can go up if you invest it.

How long will 200k last in retirement? ›

How long will $200k last in retirement?
Retirement ageLength of time covered by the $200k (assuming a life expectancy of 80 years)Maximum annual and monthly distributions
6020 years$10,000 annually, $833 monthly
6515 years$13,333 annually, $1,111 monthly
70Ten years$20,000 annually, $1,667 monthly
4 more rows

Is $100 a month enough for retirement? ›

Your Retirement Savings If You Save $100 a Month in a 401(k)

If you're age 25 and have 40 years to save until retirement, depositing $100 a month into a savings account earning the current average U.S. interest rate of 0.42% APY would get you to just $52,367 in retirement savings — not great.

What is the average Social Security check? ›

As of March 2024, the average retirement benefit was $1,864.52 a month, according to the Social Security Administration. The maximum payout for Social Security recipients in 2024 is $4,873 a month, and you can only get that by earning a very high salary over 35 years.

What is the 50 30 20 rule? ›

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

How many Americans have $1,000,000 in retirement savings? ›

However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.

How many people have $500,000 in retirement? ›

How much do people save for retirement? In 2022, about 46% of households reported any savings in retirement accounts. Twenty-six percent had saved more than $100,000, and 9% had more than $500,000. These percentages were only somewhat higher for older people.

What percentage of retirees have $3 million dollars? ›

Specifically, those with over $1 million in retirement accounts are in the top 3% of retirees. The Employee Benefit Research Institute (EBRI) estimates that 3.2% of retirees have over $1 million, and a mere 0.1% have $5 million or more, based on data from the Federal Reserve Survey of Consumer Finances.

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