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How Much Do I Need to Save for Retirement?

• Everyone’s circumstances are different—your desired lifestyle, current savings, expected expenses, and sources of income in retirement all vary so rules of thumb are of limited usefulness.

• I usually recommend a minimum of 10% of income should be dedicated towards a pension and investments is a starting place.

• We’ll look at one example of someone living on $60k in retirement as the income goal throughout this post.

The 80% Rule - How much do you want to spend in retirement?

A generic guideline is that you’ll need 80% of your pre-retirement income each year to maintain your lifestyle. If you currently earn $75,000 annually, that would be a retirement income of $60,000 per year.

• There are many planning to retire who right now have nowhere near sufficient resources to fund 80% of their working years income in retirement.

• Especially if there are specific circumstances like income sources that end, large healthcare expenses upcoming, or one-time lump sum withdrawals like for a real estate purchase. These can easily derail an entire plan without a detailed plan accounting for all factors, which rules of thumb cannot account for.

The 4% Rule - How much can you spend in retirement?

• The 4% rule suggests withdrawing 4% of your retirement savings each year.

• To generate $60,000 per year, you would need $1.5 million in savings:
  👉 $60,000 ÷ 4% = $1,500,000

• Of course people retire on less every day and again, depending on their retirement income sources, this rule of thumb may not be that applicable.

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Personalizing Your Retirement Goal

Instead of relying solely on general rules, consider these factors:
Lifestyle Goals – Will you travel more? Downsize? Move to a lower-cost area?
Retirement Age – The earlier you retire, the more you’ll need.
Healthcare Costs – This is the wildcard for many. Factor in potential long-term care needs too.
Other Income Sources – Will you receive Social Security, a pension, rental income, or work part time while retired?

You can see below just one of the detailed cash flow analysis and retirement income projections available in Right Capital. There are literally dozens more depending on how you want to see your financial future. The tool is powerful and helps you make decisions like:

• When and how to start collecting social security

• Lump sum vs. monthly benefit pension options

• Plan income sources like RMDs, deferred compensation, stock compensation, business sales, and other income events so you don’t pay too much tax.

• Know how much and when to convert pre-tax accounts to Roth accounts, effectively lowering your lifetime taxes due.

• The list essentially goes on and on!

How Much to Save Each Month?

Here’s a few rules of thumb for how much you should save monthly based on your age and savings target:

Or you can have a personalized financial plan, showing you exactly how much you are planned to save this year by source. You will always know what your savings rate is and if it’s sufficient. That’s far more effective than a generic rule of thumb!

Adjusting for Inflation & Market Changes

Your retirement plan isn’t static—review it regularly and adjust based on inflation, market performance, and life changes. For this reason, an ongoing planning relationship with a professional can go a long way toward ensuring you retire how and when you want.