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- Target savings will vary for each future retiree, depending on one's expenses and current salary.
- Many advisors recommend saving 15% of your earnings annually or even more if you are getting a late start.
- Multiple income streams and a conservative withdrawal rate ensure you don't run out of money.
Acquiring adequate retirement savings doesn't happen overnight. For most people, saving enough for retirement requires decades of dedication and strategic financial planning. But how much do you actually need to save to ensure a comfortable retirement?
Here are the best retirement plans, calculators, investment strategies, and tips you can use to ensure your retirement savings plan is on track.
Understanding retirement needs
Assessing your retirement needs
Unfortunately, there's no general number to aim for when saving toward retirement. Your target retirement savings goal will differ greatly from your siblings', neighbors', and even your coworkers' goals since the amount you'll need largely depends on personal factors.
However, one rule of thumb applies to everyone: The sooner you start saving, the less effort you'll need to put in to reach your goal, and the better-positioned you'll be later in life.
According to the 2024 MassMutual Retirement Happiness Study, the average age for retirees in the U.S. is 62. If you were to live to 85, this means you'd need enough money to cover all your expenses (and retirement goals) for at least 22 years. Economic factors like inflation will also certainly impact your savings over time.
Estimating your retirement expenses
Understanding what you expect retirement to look like will help determine how much you'll need to fund that lifestyle. If you plan to travel the world in luxury, your budget will differ from someone wanting to bird watch from the backyard each morning.
In retirement, your savings will cover many of the same expenses you had pre-retirement. This includes costs like food, housing, transportation, clothes, gifts, utilities, insurance (including a health plan), and travel.
In most cases, these expenses won't change much from pre- to post-retirement, which makes creating a budget easier. But if you have big plans for your retirement years (moving to a new state or country, buying a bigger home, increasing travel, etc.), you must calculate how much your new standard of living will cost.
How much do you need to retire comfortably?
The first step to adequately saving for retirement is to determine how much you'll need. This means analyzing current and future expenses and deciding how much you can afford to put away each month. You may also want to use a number of different savings and investment vehicles or passive income streams.
Financial advisors suggest saving around 10 times your current salary by the time you reach retirement age. Before you retire, you should aim to reduce your annual expenses as much as possible, including paying off existing debt. This can help stretch your retirement savings for even longer.
As always, it's wise to consult with a trusted financial planner to help you determine your unique needs and retirement savings strategy.
How much to save for retirement based on your age
One way to see if you're on track to reach a comfortable retirement savings is to aim for a multiple of your current annual earnings. This serves as a rough estimate so you can get a better sense of your situation. Remember that the amount of savings required to ensure a comfortable retirement varies according to your projected retirement costs and even the specific investments you choose for your retirement portfolio.
According to Fidelity, here's how much you should have saved up each decade to meet your retirement goals:
Age | Annual salary allocated for retirement |
30 | 1-2 times your starting salary |
40 | 3-4 times your starting salary |
50 | 6-7 times your starting salary |
60 | 8 times your starting salary |
67 | 10+ times your starting salary |
Financial advisors recommend dedicating 15% of your annual income toward retirement. However, depending on your retirement goals, financial obligations, and current assets, you may need to save even more.
Building your retirement savings
Types of retirement accounts (401(k), IRA, etc.)
There are multiple savings vehicles and income streams to consider for building your nest egg. These can affect how much you need to save today, depending on which sources of income are available to you.
Some of the most popular types of retirement accounts include:
- 401(k) plans: Employer-sponsored investment vehicles with compounding power and tax advantages to help you grow your nest egg steadily over time. Money in a 401(k) can be invested in various securities, and your contributions may even be matched by your employer, amplifying your efforts. Funds can be distributed without penalty beginning at age 59 ½, or earlier with certain exceptions.
- IRAs: IRAs are retirement accounts individuals open through major banks, credit unions, and other financial institutions. The best IRA accounts include traditional, Roth, SEP, and SIMPLE IRAs. IRAs have the same tax advantages as 401(k)s but offer more flexibility over how your funds are allocated.
- Traditional pension plans: Traditional pensions are another employer-sponsored investment vehicle certain businesses offer. With a pension, your employer is responsible for contributing and investing the funds in your account. The amount contributed is determined by employee earnings and years at the business.
Outside of savings accounts, other ways to generate income during retirement include:
- Social Security benefits: Social Security is a government program that provides individuals with monthly retirement and disability benefits. You can opt-in to start receiving Social Security benefits as early as age 62, but you'll receive lower payments. Financial experts recommend delaying Social Security until you reach full retirement age (age 70).
- Annuities: Annuities are another retirement income source to consider. They're offered by insurance companies and act as a long-term investment vehicle. After purchasing an annuity — either with a lump sum or periodic purchase payments — you will receive regular payments over the course of your retirement.
Adjusting for inflation, lifestyle, and healthcare costs
Planning for inflation in retirement
Remember to consider inflation and its impact on your savings. For instance, in 2024, there have been inflation rates of 3%, following the 3.3% increase in 2023 and the high 6.5% rate in 2022. Generally, you should account for inflation of approximately 2% per year.
However, certain economic, political, or natural disasters can cause unexpected spikes in inflation. In those cases, you may experience significant financial losses that require you to permanently or temporarily adjust your lifestyle and budget. One of the best ways to hedge against inflation and market downturns is by continuing to invest after retirement.
Healthcare costs and long-term care planning
Try to account for potential unexpected expenses, such as medical care for you and your spouse or even financially helping a child or grandchild.
"The most common expense that a retiree can ignore (or forget to budget for) is end-of-life expectancy expenses," says Jim Ludwick, a CFP and member at Garrett Planning Network. "This includes caregivers coming to your house, going into assisted living, or skilled nursing. Those are very expensive parts of people's lives. And a lot of times that can eat up quite a bit of savings if it goes on for an extended period of time."
Downsizing and lifestyle adjustments
When planning your retirement lifestyle, consider where you want to live. You may want to downsize depending on your preferred lifestyle, savings amount, and priorities. That said, your priorities may be buying your dream retirement home or moving to a certain location. In this case, be sure that you factor those larger expenses into your budget.
Retirement planning general rules of thumb
While everyone's situation and needs will differ, there are a few primary rules of thumb that most financial advisors follow, which you should consider when determining how much to save for retirement.
Retirement income as a percentage of pre-retirement income
Many financial professionals recommend that you account for between 70% and 80% of your pre-retirement income each year in retirement. This means that if you currently earn $60,000 per year, you should plan to spend between $42,000 to $48,000 annually once you retire.
This isn't a set rule for everyone, and you may need to even account for more savings. "Many people need to have income streams (or savings and investments) cover 80%, 90%, or even 100% of their pre-retirement budget," Ludwick says. It all depends on your specific expenses now and in retirement.
Saving 15% of your earnings every year
If you start saving for retirement early enough, an annual savings rate of 15% may be sufficient to meet your goals. If you're off to a late start, you may need to save a lot more each year to catch up.
"As you get older, the amount needed for savings to reach the same end goal roughly doubles every 10 years," says Tolen Teigen, chief investment officer for FinDec. "So, if someone waits ten years to start saving, instead of 30, they are now 40. Instead of 8% to 10% annually, they are now looking at 16% to 20% saved to reach the same end number."
Saving 10 times your income by retirement age
As mentioned above, many financial advisors and firms like Fidelity recommend having approximately 10 times your annual salary saved by the time you reach retirement age. While this may not be exactly what you need, it's a good target to keep in mind as you go. You can always adjust it depending on your projected needs in retirement.
The 4% withdrawal rule
Many retirees are concerned about running out of money once they reach retirement. The 4% rule may be a good guideline to avoid this. While many factors can affect the actual drawdown process, the 4% rule can be a good place to start if you want to avoid running out of money.
This rule states that retirees can withdraw up to 4% of their retirement savings in year one of retirement. So, if you have $2,000,000 in retirement savings, you would withdraw $80,000 that first year. In year two, you would adjust that $80,000 for inflation and withdraw that amount from your savings.
Keep in mind that while the 4% rule is standard, some financial advisors say your actual withdrawal percentage could be anywhere from 3% to 5%.
Seeking professional advice when retirement planning
There is no one-size-fits-all approach to saving for retirement. Everyone's needs will be different, and so will their approach to saving, including when they start and how much they can set aside each year. Consulting with a certified financial planner or other retirement expert is the best way to understand your unique needs.
"Planning ahead and checking in on your efforts" is key to saving enough for the retirement years, Ludwick says."It's dangerous when you're 75 and realize you're running out of money and you have to move in with a younger sibling or something."
His advice? "If you want to stay independent, do your homework ahead of time. Think about all those things that could possibly happen. If they don't happen, you're lucky … and your kids and grandkids can have a nice gift that you leave behind."
FAQs
You can calculate how much you need to retire by assessing your expected expenses, considering your desired lifestyle, current expenses, projected inflation, and healthcare costs. Business Insider's free retirement calculator can help you see if you're on track to secure a comfortable retirement. You can also use other rules of thumb, such as having an annual savings rate of 15%.
The 4% rule in retirement planning suggests withdrawing 4% of your retirement savings each year to prevent you from prematurely running out of money for at least 30 years. It's a general guideline to help estimate how much you need to save. However, some advisors recommend more or less than that rate.
You can maximize your retirement savings by regularly contributing to tax-advantaged retirement accounts like 401(k)s and IRAs to maximize employer matching contributions, investment opportunities, and compound interest. Generally, it's best practice to max out your retirement accounts first. Also, adopt a diversified investment strategy for greater portfolio growth and risk management.
The sooner you start planning for retirement, the easier it will be to compound your savings and reach your goals. Starting in your 20s and 30s allows more time for your investments to grow. It's still possible to catch up if you start in your 40s or 50s by saving more aggressively and adjusting your strategy, but it will be generally more stressful.
Common mistakes to avoid in retirement planning include underestimating expenses, waiting to start saving, relying too heavily on Social Security, failing to diversify investments, spending too quickly, and not accounting for healthcare costs and inflation. The best way to avoid these common mistakes is by creating a thorough financial plan and consulting a financial advisor.
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