The amount of money you need to retire depends on various factors including your desired lifestyle, location, expected expenses, and sources of retirement income.
General Guidelines
- A common rule of thumb is to aim to replace about 70% to 80% of your pre-retirement annual income through a combination of Social Security, pensions, and personal savings/investments
- Many experts suggest having saved roughly 10 to 12 times your annual salary by the time you retire to maintain a comfortable lifestyle
- For example, if you earn $70,000 per year, you might aim to have $700,000 to $840,000 saved by retirement.
Typical Savings Targets
- According to a survey, the typical American worker believes they need about $1.46 million saved to retire comfortably, which would generate roughly $58,400 annually at a 4% withdrawal rate, plus Social Security benefits
- However, the average retirement savings is much lower, around $88,400, leaving a large gap for many people
- Location matters: retiring in an expensive state like Hawaii may require over $2.2 million for 25 years of essential expenses, while a lower-cost state like West Virginia may only require about $713,000
Factors to Consider
- Your lifestyle expectations: travel, dining out, housing choices, healthcare needs, and inflation all impact how much you need
- Health insurance costs, especially if retiring before Medicare eligibility, can be significant
- The length of your retirement: planning for 25-30 years is common given increasing life expectancies
- Your current savings rate and investment returns will affect how quickly you can accumulate the needed nest egg
Saving Benchmarks by Age (for guidance)
Age Range| Recommended Savings Multiple of Salary
---|---
18-25| 0.1 times
26-30| 0.5 times
31-35| 1.1 times
36-40| 1.9 times
41-45| 2.8 times
46-50| 3.9 times
51-55| 5.3 times
56-60| 6.9 times
61-64| 8.5 times
(Source: Bank of America and T. Rowe Price benchmarks)
Summary
To retire comfortably, most people should aim to save between $1 million and $2 million depending on their income, lifestyle, and location. This typically supports a 25-30 year retirement with about 70-80% income replacement. Starting early, saving consistently, and adjusting for your personal goals and local costs are key to determining your exact target
