Retirement is one of life’s biggest financial goals. Deciding when to retire and how much money you’ll need can be challenging. With careful planning, you can help ensure you have enough savings and income in retirement to live comfortably.
Calculate Your Retirement Savings Goals
Determining your retirement savings target requires looking at a variety of factors:
When Do You Want to Retire?
The age you plan to retire greatly impacts how much you need to save. Delaying retirement by even a few years means your savings has more time to grow. You’ll also have fewer years in retirement to fund.
What Will Your Retirement Lifestyle Cost?
Think about your expected spending on basics like housing, food, and transportation. Also factor in discretionary spending like travel and gifts for grandchildren. If you plan to move or downsize your home, understand how that will impact expenses.
How Long Will Retirement Last?
While no one knows exactly how long they’ll live, looking at family history and average life expectancy can help you estimate. Plan for at least 25-30 years of retirement. Married couples should consider the younger spouse’s life expectancy.
What Other Retirement Income Sources Do You Have?
Social Security, pensions, annuities, and part-time work can provide retirement income. Factor these in when deciding how much you need from personal savings.
Retirement Savings Benchmarks
Retirement experts have created some useful benchmarks to help guide your savings goals:
The 10x Final Salary Rule
Aim to have 10 times your final pre-retirement annual salary in savings by age 67. For example, if your final salary is $100,000, target $1,000,000 in retirement savings.
The Income Replacement Rule
Save enough to replace 60-80% of your pre-retirement income. This allows you to maintain a similar lifestyle while accounting for reduced expenses.
The 25 Times Annual Spending Rule
Save 25 times your expected annual spending in the first year of retirement. If you anticipate needing $50,000 annually, aim for $1,250,000 in retirement savings ($50,000 x 25).
Age-Based Retirement Savings Milestones
Saving a percentage of your income consistently from an early age is key. Here are some age-based benchmarks from Fidelity Investments to help you stay on track:
- By 30: Have 1x your salary saved
- By 40: Have 3x your salary saved
- By 50: Have 6x your salary saved
- By 60: Have 8x your salary saved
- By 67: Have 10x your salary saved
For example, if you earn $70,000 at age 40, aim to have $210,000 saved by then. If your salary is $100,000 at age 60, strive for $800,000 in retirement savings by that age.
The 4% Safe Withdrawal Rate Rule
The 4% rule suggests you can safely withdraw 4% of your retirement savings the first year. Adjust withdrawals for inflation annually in subsequent years. This conservative rule aims to make savings last at least 30 years.
For instance, if you have $1,500,000 in retirement savings, you could withdraw $60,000 the first year (4% of $1,500,000). Increase the withdrawal amount slightly each year to keep pace with inflation.
Use an Online Retirement Calculator
Online calculators allow you to input details like current savings, estimated returns, retirement age, and spending. This helps determine if you’re on track or need to make adjustments. Calculators can also show the impact of tweaks like saving more or delaying retirement.
Build Your Retirement Savings Over Time
- Start saving early and consistently
- Utilize tax-advantaged accounts like 401(k)s and IRAs
- Invest savings in a diversified mix of stocks and bonds
- Avoid tapping retirement savings before retirement
- Consider part-time work in early retirement to supplement savings
Review Your Plan Regularly
Revisit your retirement savings strategy at least annually. Update key assumptions like income, spending needs, and life expectancy. Make changes if you’re falling behind your goals. Meeting regularly with a financial advisor can help keep your plan on track.
Bottom Line
In summary, target 10 times your final salary, replace 60-80% of income, or use a 4% withdrawal rate. But the key is tailoring a plan to your situation using online tools. Start early, save consistently, review often. This will help you achieve your retirement goals.
Frequently Asked Questions
How much do I need to retire at age 65?
For retiring at 65, experts suggest having at least 8-10 times your pre-retirement annual income saved. For example, if your final salary is $80,000, strive to accumulate $800,000 – $1,000,000 in retirement savings by age 65.
What if I’m off track for my retirement savings goals?
If you find you haven’t saved as much as recommended, you have options. Increasing contributions, working longer, downsizing your home, or reducing spending during retirement can help make up a shortfall. Speaking with a financial advisor can help create a plan.
How do I calculate income needed in retirement?
Total up your expected annual spending in retirement. Then subtract out estimated income from Social Security, pensions, annuities or other sources. The remainder is how much annual income your retirement savings will need to provide. An advisor can help with projections.
How much should I have saved by age 30/40/50/etc?
As a guideline, aim to save 1x your salary by 30, 3x by 40, 6x by 50, and 8x by 60. Having 10x your final salary saved by the typical retirement age of 67 is recommended. But everyone’s situation is different – focus on consistent saving from an early age.
What percentage of income should I save for retirement?
Ideally save 15% or more of your gross annual income toward retirement, including any employer contributions. Saving more when you’re young through vehicles like 401(k)s can really pay off thanks to compound growth over time.
