How Much Do You Need To Retire?

As we help people prepare for retirement, one big question comes up all the time: “How much will I need to retire?” Unfortunately, the exact amount needed is different for everyone. However, there are steps you can take to determine on your own how much you need to retire comfortably.

Why it’s important to understand how much you will need

Understanding how much you’ll need to retire comes with many benefits. Primarily, when you know how much you need, you can take steps to reach your retirement goals. By taking these steps, you can improve your ability to:

Retire on time

Having enough money to provide for your retirement can help you retire once you hit retirement age. This way, you get to decide for yourself how you spend your later years.

Generate enough retirement income

One of the most important aspects of preparing for retirement is ensuring you can generate enough income to sustain yourself. If you’ve figured out how much you’ll need, you can make sure you can afford your bills, your healthcare, and other important life expenses.

How to determine how much you need

Choose your desired retirement age

Once you figure out how much you need, you can compare that to how much you have. This can help you determine how much more you need to save. Using your own timeline for when you plan to retire, you can then plan out your best course for hitting your retirement goals.

Account for your needs

Again, every person—and their needs—are different. There are still some steps you can take to figure out how much you’ll need to retire on your own terms. The process requires deciding how you want to retire and calculating how much that might cost. These steps include:

Some retirement strategies suggest a specific amount you might need for retirement. The fault in this method is that it’s simply a guess. There’s no one magic amount that works for everyone. By calculating how much you’ll need for retirement, you take your own personal needs into account.

Depending on your birth year, your retirement age is somewhere between 66 and 67 years old. While that could change in the future, it sets a good benchmark. Some people retire early; some continue working for several years before they retire. The age you retire is an entirely personal decision. It’s important to keep in mind that your desired retirement age can affect how much you have to save and how long you have to do it—which is why it’s an important first step.

Determine your desired lifestyle

Once you retire, what do you want to do? You might want to travel. You could start a small business or invest your time in a favorite hobby. Maybe you’d like to stay at home, move to a new city, or enter a retirement community. What you do when you retire is up to you—and there are no wrong answers. No matter your planned retirement lifestyle, it comes with its own specific costs. Once you’ve decided your potential life after retirement, you can begin to calculate how much you’ll need to achieve it.

Create a retirement budget

Your living expenses, healthcare needs, and lifestyle costs all require income. With some research, you can determine what your chosen lifestyle might cost you. Using this, you can determine how much money you’ll need each month to sustain you. It’s helpful to create detailed, organized lists of expected expenses and their costs. The more specific your budget, the more accurately you can calculate your retirement savings needs.

Factor in inflation, debts, life expectancy, etc.

The unfortunate part of saving for retirement is that it asks you to become something of a fortune teller. Things like inflation, life expectancy, and your personal debt can seem impossible to predict. The good news is, there’s extensive research available to help you estimate these numbers. Internet searches can help you find the current life expectancy for your gender and location. Economists often release data on expected future inflation.

Calculating your personal debts might take more work. For instance, you might try to figure out whether you plan on moving to a new home or purchasing a new car close to retirement. When all else fails, financial advisors can help you more accurately calculate how economic changes might affect your retirement savings needs.

Alternate calculation methods

There are some other methods of calculating your retirement savings needs. While these methods might offer help creating an estimate, keep in mind that these methods don’t take your personal needs into account.

The 4% rule

The 4% rule is simple: take your desired annual retirement income and divide it by 4%. The result is how much you’d need in savings to receive that yearly income. Specifically, the 4% rule helps you understand how much money you’d need to save to sustain yourself for 30 years.

Retirement calculators

With a quick internet search, you can find several retirement calculators. These calculators ask you to put in information about your age, income, and needs. They then use this information to calculate how much you’ll need for retirement. Retirement calculators can also help you figure out how much you need to save each month in order to reach your savings goals.

Age method

The age method is less of a calculation and more of a guideline. Instead of taking your needs into account, it suggests generic retirement savings benchmarks based on your age. It frames these suggestions as multiples of your annual income. Different sources may suggest different amounts, but a typical age method chart might look something like this:

  • Salary x1 by age 30
  • Salary x2 by age 35
  • Salary x3 by age 40
  • Salary x4 by age 45
  • Salary x6 by age 50
  • Salary x7 by age 55
  • Salary x8 by age 60
  • Salary x10 by age 67

Again, these are generic benchmarks. Your actual needs might require a higher or lower amount of income saved for retirement.

How to build retirement savings

The great news is, with saving for retirement, you have many options. We’ll discuss some of the most popular options, but a financial advisor might have additional suggestions based on your income, goals, and capabilities.

Savings accounts

Savings accounts are simply accounts you hold at the bank. The amount you deposit into the account is entirely under your control. It’s important to note that savings accounts don’t grow over time unless you deposit more money into them. Though some accounts generate interest, it’s often a low amount that falls below inflation rates. This means that the longer your money stays in a savings account, the less it might actually be worth.

401(k) accounts

401(k) accounts are one of the most popular long-term retirement plans available. In fact, your employer likely offers a 401(k) option. With this type of account, the money you contribute gets invested in a way designed to grow slowly over time. The more you contribute, the more investments you can make, and the more your account can grow. 401(k)s have maximum annual contribution limits. In 2022, 401(k) accounts have an annual contribution limit of $20,500.

401(k) plans are tax deferred, meaning you don’t pay tax on your contributions. Effectively, this works as a tax deduction—lowering your taxable income by your contribution amount and potentially lowering your tax rates. Instead, you pay regular income taxes on 401(k) distributions when you receive them during retirement.

As an added bonus, many employers offer employer match options for your 401(k). An employer match option literally offers you free money. With an employer match, your employer matches a portion of your 401(k) contributions. This option might be opt-in, so consider researching whether your employer offers this to help maximize your 401(k) plan growth.


Individual retirement accounts are another option for long-term retirement savings. Much like a 401(k), your contributions get invested so your account can grow over time. There are several types of IRAs you can choose from. Traditional IRA contributions are pre-tax, only getting taxed once you receive them as income distributions. Roth IRA contributions are after tax. With after-tax contributions, you pay taxes upfront. However, you get to receive your distributions as tax-free income. Which type of IRA you choose can depend on whether you’d rather pay income taxes based on your current income or retirement income.

Social security

Social security is, essentially, a tax you pay. You automatically contribute a portion of your income into social security. The basic idea is that the current worker base pays a tax that helps fund the retirement of current retirees. This can make social security potentially unstable and risky. If there are more retirees than workers, there might not be enough funds to go around. Still, when combined with other retirement accounts, social security can be an invaluable source of retirement income.

Traditional investments

If you’d like, you have the option of investing your money directly into the stock market or other investments. Investing in the stock market can come with high risks. Because of the intricacies of the market, success can require knowledge, experience, and patience. If you decide to invest your money this way, it’s highly recommended you hire a financial advisor. An advisor can help you develop an individualized investment strategy based on your risk tolerance level and money personality. They can also give you up-to-date investment advice based on current market trends.

What to do if you don’t have enough to retire

So, what happens if you’re approaching retirement and realize you don’t have enough saved up? If this is your situation, you have some options available to you.

Catch-up contributions

Many retirement accounts give you options for saving more the closer you get to retirement. These catch-up contributions raise the annual contribution limits to your accounts, allowing you to save even more each year before you retire. This way, you can supercharge your retirement accounts’ growth just before you’re ready to retire.

See Also: Later in Life Investing: What You Should Know

Continue working

If you don’t have enough money for retirement, you might choose to continue working. Though this option is less than ideal, it can help you continue to make contributions to retirement accounts before taking required minimum distributions (RMD). This can also help you take further advantage of your retirement accounts’ catch-up contributions.

Hire a financial advisor

When saving for retirement, a financial advisor is almost always a wise choice. If you’ve found you haven’t saved enough for retirement, a financial advisor can help you develop a plan to retire on your terms.