For many people, retirement feels like a distant goal — one that’s tough to fully picture. While most of us know we want to retire someday, figuring out what it takes to make that happen can be unclear. That’s why setting aside time for retirement planning and figuring out how much you really need to save is so important. It gives you a clear target to aim for and helps you monitor whether your current savings habits are on the right track.
Sure, there are common guidelines when it comes to saving for retirement, but we’re going to walk you through how to determine if your savings are truly enough to support the lifestyle you envision. We’ll also outline key milestones to help you measure your progress along the way.
Calculate your retirement budget
Before you figure out how much to save, it’s essential to first visualize what retirement means for you. Some of your current expenses may shrink, like commuting costs or eating out during workdays, but others, such as travel, hobbies, or healthcare, could go up.
Take a moment to think about the kind of life you want in retirement. Will your budget include global adventures or more frequent visits with loved ones? Are there activities you’ve always wanted to explore once you have more free time? Maybe you’d even like to go back to school and dive into subjects that interest you. Reflect on how you spend money now and how those patterns might shift as you age.
Next, pull out a notebook or open a spreadsheet and start mapping out your projected monthly budget. Create columns for each spending category, your current monthly spending, and your estimated retirement spending. Having your current budget in front of you makes it easier to set realistic goals for your future.
Here are some general categories to get you started, but feel free to tailor the list to fit your personal situation and goals:
- Housing
- Utilities
- Groceries and dining
- Transportation
- Healthcare
- Personal insurance
- Personal care
- Family support
- Travel and entertainment
- Debt repayments
- Charitable giving
Once you’ve filled in your numbers, add them up to calculate your total expected monthly expenses in retirement. Be sure to account for inflation too, as it will gradually increase your costs over time. Historically, inflation has averaged around 3%, but in recent years it’s been closer to 2%. At those rates, your expenses could potentially double in the span of 20 to 30 years.
One factor that can seriously throw off your retirement plans is lingering debt. That includes mortgages, credit card balances, auto loans, or student loans. Ask yourself if these will be paid off by the time you retire, or if you will still be making payments from your retirement income. If possible, consider consolidating or refinancing high-interest debts, especially credit cards or student loans, so you can eliminate them faster and keep them out of your retirement budget entirely.
Calculate your retirement distributions
The next step is to figure out how much fixed income you’ll have during retirement from Social Security, pensions, and any other income sources. Every dollar of steady income you can count on will lower the amount you need to save and invest ahead of time.
Social Security Benefits
If you were born after 1960, you can start claiming full Social Security benefits at age 67. However, there is an advantage to waiting, as your benefit amount increases by 8 percent for every year you delay. If you wait until age 70, the maximum age to start, your benefits can grow to 124 percent of the standard monthly payout.
The size of your Social Security checks depends on your earnings history, how long you worked, and the age at which you begin collecting. The Social Security Administration has calculators you can use to estimate your benefits accurately.
To get a personalized look, sign up for a my Social Security account. There, you can view your earnings record and projected retirement, disability, and survivor benefits. Be sure to check your earnings report for errors. Fixing a mistake now could boost your future payments.
Pension Income
While pensions are not as common as they once were, some people still qualify for them. A pension’s value is usually based on how long you worked, your salary history, and when you retire. To learn more about your pension, contact your plan administrator or HR department.
Other Income Sources
You may also have other sources of income, such as money from rental properties, a business, or part-time work. These forms of income can help reduce how much you need to set aside now.
Many people choose to work after retiring. They may enjoy staying busy, need the income, or want access to job-related health benefits. Just remember that physical work might become more difficult with age, even if you still feel mentally sharp.
Now go back to your spreadsheet or notebook and create a section for income. List your estimated monthly amounts from the following:
- Social Security
- Pension
- Part-time or post-retirement work
- Any other income sources
Once all amounts are added, total them up to see your estimated monthly income in retirement.
Calculate how much to save for retirement using a calculator
A retirement savings calculator serves as an essential tool for individuals seeking to estimate their future savings needs. The primary purpose of these calculators is to provide users with a clear understanding of how much money they will require upon retiring, taking into account various financial factors. By utilizing these calculators, individuals can make informed decisions about their savings strategies, ensuring that they are adequately prepared for their retirement years.
Retirement Savings Calculator
How much to save
Saving and investing are not the same thing. Saving is for short-term needs, using money that is safe, easy to access, and stable in value. The goal is to make sure the money is available exactly when you need it. You might keep this money in a checking account, a high-yield savings account, or a short-term certificate of deposit, also called a CD.
While you are still working, a common rule is to have enough cash saved to cover three to six months’ worth of expenses. This creates a buffer for emergencies and helps you avoid going into debt. Once you retire, however, it is smart to increase this cushion, since you will no longer receive a regular paycheck to quickly rebuild your savings. Some financial experts suggest that retirees keep one to three years of planned withdrawals in cash. This gives you a safety net during periods of market decline, so you don’t have to sell investments at a loss.
To figure out how much you should have saved in your retirement emergency fund, use the monthly number you calculated earlier. For instance, if you plan to withdraw $3,000 each month, you would need between $36,000 and $108,000 set aside in cash for emergencies.
While cash usually doesn’t grow as fast as investments, that’s not a problem in this case. You are trading growth potential for security and peace of mind, which is exactly what your emergency fund is meant for. Even so, some cash storage options can still offer better returns than others.
Instead of letting that money sit in a standard checking account or a savings account that earns very little interest, you might consider the following:
- Look for a high-yield savings account online to earn more interest
- Set up a CD ladder with certificates that mature every six to twelve months
- Contribute to a Health Savings Account to grow money tax-free and use it for approved medical costs
How much to invest
Using a savings account is great for covering short-term needs, but when it comes to your long-term goals, investing your money is essential. Investing helps your money grow at a higher rate and keeps it ahead of inflation, which reduces your spending power over time.
Investing plays a major role in retirement planning. Looking back over the last 60 years, the average annual return from the stock market has been about 8 percent. That’s well above the long-term average inflation rate of around 3 percent. Because your investment returns outpace inflation, the money you have invested will be worth more in the future, both in terms of actual dollars and inflation-adjusted value.
This growth becomes even more effective when you use tax-advantaged retirement accounts. These types of accounts let your investments grow without being taxed until you withdraw the money. Some, like traditional IRAs and 401(k)s, offer tax deductions when you contribute. Others, like Roth IRAs, allow for tax-free withdrawals in retirement. The right option for you will depend on your financial goals, income, and whether you have access to an employer-sponsored retirement plan.
To figure out how much you need to invest, start by looking back at the retirement number you calculated earlier. Your emergency savings is meant to handle short-term spending, so it does not count toward the total amount you need to generate income long-term. If, for example, you determined that you need $900,000 to retire comfortably, then that full amount needs to be grown through your investments.
According to the 4 percent rule, you can help ensure your retirement savings last for about 30 years if you keep your investments diversified in the stock market, withdraw only 4 percent of your starting balance in the first year, and then increase that amount annually to keep up with inflation.
Which accounts to invest in
Smart investors take advantage of different types of investment accounts to benefit from tax perks both now and during retirement. If you have access to a traditional 401(k), you can contribute pre-tax income up to $23,000 for 2024 if you are under age 50, or up to $30,500 if you are 50 or older. You can also make after-tax contributions to a Roth IRA, with limits of $7,000 in 2024, or $8,000 if you’re 50 or older.
Making consistent contributions to these accounts can significantly boost your retirement savings. Roth IRAs allow for tax-free withdrawals in retirement, while 401(k)s often provide the added benefit of automatic payroll contributions and potential employer matching funds.
After you’ve reached the annual contribution limits for any employer-sponsored plans, the next move is to consider a standard brokerage account. These can be opened with well-known investment firms like Fidelity or Vanguard, or you can use one of the top-rated online brokers instead.
With a brokerage account, you have access to a broad range of investment choices. These include individual stocks, mutual funds, ETFs, or even alternative assets like real estate. There are no annual contribution limits, and you can take money out whenever you need it. However, you will need to report gains or losses when you withdraw funds, and any profits are subject to capital gains taxes when you file your annual return.
Thanks to modern investment apps, getting started with stocks is now easier and cheaper than ever. You no longer need to wait until you can afford a full share of stock. Instead, you can invest in fractional shares based on whatever dollar amount you are ready to put in.
So are you saving enough for retirement?
When you first run the numbers for your retirement target, the total can feel intimidating — especially if you’re just getting started or feel behind on saving.
The most important thing is to begin where you are and increase your contributions as you go. The earlier you start, the more time your money has to grow thanks to compound interest. If your employer offers a match on your 401(k) contributions, take full advantage of that benefit before contributing to a traditional or Roth IRA. Then, when you get a raise or bonus, consider putting a portion of that extra income toward your retirement accounts to build momentum.
As with any long-term goal, having clear milestones helps track your progress. Below is a sample of how much you might aim to have saved at different ages. These figures come from two major investment firms and are expressed as multiples of your current annual income.
You can use them as general benchmarks to assess how you’re doing along your journey.
| Age | Fidelity | T. Rowe Price |
|---|---|---|
| 35 | 2× income | 1× income |
| 40 | 3× income | 2× income |
| 45 | 4× income | 3× income |
| 50 | 6× income | 5× income |
| 55 | 7× income | 7× income |
| 60 | 8× income | 9× income |
| Retirement | 10× income at age 67 |
11× income at age 65 |
For instance, if you're earning $30,000 a year at age 35, Fidelity recommends having around $60,000 saved for retirement by that point. But if your savings aren’t quite there yet, don’t stress. Even major financial firms have different opinions on what the ideal savings targets should be.
Use these benchmarks as general guidance while you keep building your retirement and investment accounts. With consistent contributions and positive market growth, you might hit these targets sooner than you think
Conclusion
Now that you’re familiar with the essential parts of retirement planning, creating a strategy tailored to your needs becomes more manageable. Not only does saving for retirement move you closer to your future goals, but it also plays an important role in your overall tax strategy — helping you reduce your tax burden now, in the near future, and during retirement. As you build your plan, it might be wise to speak with a financial advisor or tax expert who can offer guidance or answer any questions you have.
If your long-term goals feel overwhelming at the moment, that’s perfectly normal. What matters most is getting started. Over time, you can gradually increase your savings as your income grows, your expenses go down, or you come across unexpected money like tax refunds, contest prizes, or even credit card sign-up bonuses.
As the old saying reminds us, “The best time to plant a tree was 20 years ago. The second best time is today.”