How much do you need to retire? Answer these questions
Retirement looks different for everyone. But whether you plan to spend your golden years living around the world, playing at the beach with your grandchildren or tending to your garden, it’s true: It will cost you.
– Honestly how much It will cost you not sure. Northwest wealth management company Mutual Mutual’s 2025 Planning Planning & Development study found that Americans now predict they will need $1.26 million to cover retirement. A separate Charles Schwab study from 2024 reported that employees think the number is closer to $1.8 million. America’s Real Extermination Sal Sag lags far behind those figures.
In fact, the dollar amount you need in retirement will depend on your lifestyle, how long your retirement period will be, how much you have withdrawn over the years and what other income is available to you. Doing the math while still working full-time will mean less headaches down the road.
“Recognizing in retirement that you may not have enough will require very big changes in how you spend to survive and what you can spend,” says Anjali Jariwala, financial advisor and Founder of Right Advice. “It’s easy to make a change while you’re still earning an income.”
So get out your pen and paper (or better yet, a spreadsheet) and answer the following questions to find out how much money you really need saved for retirement.
1. How much will you spend in retirement?
The financial planning industry has come up with a general rule of thumb for how much you’re likely to spend in retirement: 80% of your pre-retirement income. Assuming that in your later years, some expenses – such as overtime, mortgage payments, social security or Medicare taxes, retirement contributions – are expected to go away. But Mark Partemer, Chief Wealth Stratestios at Wealth Management Firmlede, says that as often as that is correct, there are many times when it is not entirely true.
Parthemer says the trick is The most reliable way is to look at your current lifestyle and how much it costs, and ask yourself what would change. It works best if there is more detail in the work; You may think you have a good idea of how much money you earn each month by learning how to spend vs. But you’d be surprised if you spend a few months tracking your spending.
“Everyone is their own universe,” he adds. “They have their own circumstances, health, family, desires to travel.”
You want to make sure you give yourself a buffer, too. Sure, you may not be adding expenses like gas with your drive to work, but you may be adding new retirement expenses, such as home renovations required for aging in place or increasing medical expenses tied to aging.
And don’t forget about price increases. The Federal Reserve usually targets a 2% annual inflation rate, but certain costs, such as health care, are expected to rise much faster.
Life is unpredictable, and it’s impossible to know exactly how much you’ll spend in retirement. But figuring out how much you spend now and adjusting for lifestyle changes and inflation is the first step in determining how much money you’ll need once you hit nine bucks.
2. When will your retirement be?
This question can be trickier than calculating how much you will spend in retirement, because no one knows how long they will live. But we can take an educated guess.
The Median Retirement Age is 62, according to the latest retirement prospect survey conducted annually by the Center for Employee Benefits Research. That may sound like it is at the end, and based on the expectations of the workers, it is: you are expected to wait until at least 65 until forever. That means you may be preparing for a longer retirement than you expected. With a life expectancy of 78.4 years in 2023, according to the Centers for Disease Control and Prevention (CDC), it makes sense to face retirement for at least 15 to 20 years.
For some people, however, planning for 20 years will not be enough. While the average life expectancy in the US is in the 70s for many years, the share of Americans living longer is increasing. The number of Americans living to 100, for example, is expected to drop over the next three decades, according to the US Census Bureau. Depending on when they leave the workforce, future prime-age workers could have retirements approaching 40 years old – almost as long as they’ve been working.
You should try to create a more thoughtful lifestyle measure by looking at things like your health and gender history, as well as your smoking, diet and exercise habits. Women live longer than men, with a life expectancy of 81 years compared to 76 years for men. And there’s a long line of research linking recreational activity to longevity. A study published in the journal Assern Heart Association in 2022, found that exercising five to 10 hours per week was associated with a 26% lower risk of any cause.
3. What will be your sources of income?
When you no longer receive an annual salary, you can (hopefully) say good about all the money you earn.
Visit the Social Security website to get an estimate of how much your retirement benefits will be when they come in. Your social security benefits depend on your total earnings, but there are other factors that determine your final payments. For example, the longer you delay taking these benefits, the higher your monthly payments will be.
After that, think about other guaranteed income that you can get in retirement. Pensions have gone by the wayside in recent decades but teachers, civil servants and hospital workers, rely on these retirement plans to help with living expenses in their later years. Insurance and life insurance are other options.
4. How much will you have in retirement savings?
Once you’ve determined how much you’re likely to spend for how long, and what your annual income will be, you can see the gap that needs to be covered in savings. That’s where your money in your 401(K) accounts and other employer-sponsored accounts and certain retirement accounts (IRAS) come in.
“Would this be missing from your portfolio?” Jariwala asks. “If not, the goal should be to try to save to meet the retirement goal.”
Remember that special “Catch-up” rules allow older workers to hold more in their retirement accounts. If it looks like your savings will fall behind the savings you provide in your final working years, consider whether there is any availability of any non-liquid assets that can leverage your accounts. Selling your home and downsizing to a cheaper property or moving to a cheaper place can help you close the gap.
A general rule of thumb used by financial advisors is that you should be able to have a withdrawal rate of 4% of your retirement funds in the first year of retirement and adjust for depreciation with each withdrawal thereafter. In theory, that could allow you to avoid depleting your money for more than 30 years by not making any investments while maintaining the retirement you want.
It’s always important to adjust your portfolio to make sure it aligns with your retirement goals and timeline – but it’s even more important when you’re close to retirement. Take the time to see how much risk you have in your portfolio, and if you are aggressively invested in risky assets like your stocks, like your bonds. Stocks are generally volatile. In other words, you run the risk of losing money right when you start drawing your accounts.
“When you’re young, time is your friend. You can have a bad year in the stock market but you have a lot of time on your side,” said Chris Blunt, CEO of Annuity Company Fidelity & Life Guatery began his career as his advisor. “It’s the exact opposite of retirees. They don’t have time to be comfortable on the property side.”
More from money:
5 Ways to Use Your Home to Help Pay for Retirement
Using the ‘Bleved Incein’ strategy can help increase your retirement income
What retirees should know before tapping home equity to pay for medical expenses
