How Much Do I Need to Save to Retire?
Stay on Track for Retirement by Knowing How Much You Need to Save by What Age
A key part of retirement planning is to answer the question: How much do I need to save to retire? The answer varies by individual, and it depends largely on your income now and the lifestyle you want and can afford in retirement.
Knowing how much you need to save based on how old you are now is just the first step, but it starts you on the path to help you reach your retirement goals. There are a few simple formulas that you can use to come up with the numbers.
KEY TAKEAWAYS
How much you need to save for retirement depends on your current income and the lifestyle you want when you retire.
Knowing how much you need to save “by age” can help you stay on track and reach your retirement goals.
There are a few simple formulas that you can use to come up with the numbers.
How Much Do I Need to Save to Retire?
Many retirement experts recommend strategies such as saving 10 times your pre-retirement salary and planning on living on 80% of your pre-retirement annual income. That means if you make $100,000 annually at retirement, you need at least $80,000 per year to have a comfortable lifestyle after leaving the workforce. This amount can be adjusted up or down depending on additional sources of income, such as Social Security, Pensions, and part-time employment, as well as factors like your health and desired lifestyle.
The 4% Rule
To determine just how much you will need to save to generate the income that you need, one easy-to-use formula is to divide your desired annual retirement income by 4%, which is known as the 4% Rule.
For an income of $80,000, you would need a retirement nest egg of about $2 million ($80,000 /0.04). This strategy assumes a 5% return on investments, after taxes and inflation, no additional retirement income, such as Social Security, and a lifestyle similar to the one you would be living at the time you retire.
In general, the 4% rule assumes that you will live for 30 years in retirement. Retired adults who live longer need their portfolios to last longer, and medical costs and other expenses can increase as you age
Retirement Savings by Age
Knowing how much you should save toward retirement at each stage of your life helps you answer that all-important question: “How much do I need to retire?” Here are a few useful formulas that can help you set age-based savings goals on the road to retirement.
Percentage of Your Salary
To figure out how much you need to accumulate at various stages of your life, it can be useful to think in terms of saving a percentage of your salary.
Fidelity Investments suggests saving 15% of your gross salary starting in your 20s and continuing throughout the course of your working life. This should include savings across various retirement accounts as well as any employer contributions you receive to those accounts, assuming you have access to a 401(k) or another employer-sponsored plan.
How Much to Save for Retirement by Age
Fidelity also recommends the following benchmarks—based on a multiple of your annual earnings—for how much you should have saved for retirement by the time you reach the following ages.
Target Retirement Savings by Age
Age 30: 1x annual salary
Age 40: 3x annual salary
Age 50: 6x annual salary
Age 60: 8x annual salary
Age 67: 10x annual salary
Sources:
Fidelity Investments. "How Much Do I Need to Retire?."
RBC Wealth Management. "Sustainable Withdrawal Rates in Retirement: Utilize as a Guideline to Help Avoid Running Out of Money." Page 1.
Natixis. "2021 Global Retirement Index."