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How much do I need to retire, and am I saving enough money?


- How much you need to save for retirement depends on several factors, like how much you make now, when you plan to retire, and what kind of lifestyle you want to have in your golden years. 

- Social Security benefits provide some monthly income during retirement, and your savings will add to what you have available to fund your lifestyle.

- What you save for retirement each year will vary based on your goals, and you can be sure you’re on track if you set milestones for your retirement fund. 

We’ve all had a day when we woke up and thought how nice it would be to be retired. It’s exciting to imagine when we’ll reclaim our time from our jobs. Or the days we can wake up and know we can spend our energy on whatever we want. But retirement can also be a big step that needs a lot of preparation. No job means the paychecks stop coming in — even though the bills don’t. 

Making sure you have a big-enough nest egg set aside when the day comes to hang up your boots is something that takes thought and planning. And the first step of that planning is to answer the question, “How much do I need to retire?” 

We’ll help you figure out how much money you’re going to need so you can start planning your path to get there. Beach vacations, here you come!

How much do I need to retire? 🏖

There are many factors to consider when you want to figure out how big your retirement nest egg should be. For instance, you need to know just how much you’ll want to dine out, travel, and shop. But of course, there’s more than that. 

The three biggest factors for setting your retirement savings goals are:

  • Your pre-retirement income

  • Your target retirement age 

  • The retirement lifestyle you’d be comfortable with

Let’s go through these one by one to better understand how they affect your investment strategies.

Pre-retirement income

When answering the question, “How much should I save for retirement?” you need to take into account your current annual income. For most of us, income is our main source of savings, and it determines the lifestyle we currently live. Understanding how much income you make and how it might change over time can give you a starting point for your retirement planning. 

Retirement age

We know that you’re as young as you feel, but the Social Security Administration considers full retirement age for Americans to be 67 years old. This is the age you can claim your full Social Security benefits. But that doesn’t mean you have to retire at exactly 67 years old. Some people opt for an early retirement, while others might not be ready to give up the grind just yet. 

How many years of retirement you expect to have is an important consideration. Adjustments to your retirement age by a few years in either direction can have a big impact on how much you’ll need in your savings account and retirement funds. 

Retirement lifestyle

If you plan on adventure and jet-setting through your retirement, you might need to pad your savings more than you would if you just keep everything the same. Likewise, if you’re willing to simplify your day to day a bit, you can probably opt for a smaller retirement fund. 

Some of your current expenses may be reduced or eliminated in retirement, such as commuting costs. And if you’re a homeowner, you might even have your mortgage paid off, which is likely your most significant monthly expense. But you might also have new costs, like medical expenses. You’ll want to factor in your expected and potential lifestyle changes when considering how much you’ll need in retirement.

Financial planning for retirement 💵

Once you’ve considered your pre-retirement income, target retirement age, and ideal retirement lifestyle, you can develop a more focused financial plan. Keep in mind that while Social Security benefits may provide a monthly income during your retirement, they might not cover everything you have planned for your golden years. That’s where your retirement and savings accounts come in handy. 

But “How much do I need to retire?” can be a daunting question with many unknowable variables to consider. What will today’s dollars be worth tomorrow? Will the stock market's future results match its past performance? How much will health care costs rise? What’s your life expectancy? Before you consult your kids’ Magic-8 ball, take a look at what the financial planning industry has to say. 

While everyone will have different circumstances and needs in retirement, there is some general financial planning guidance that can help you get started. Let's look closer at how much you should save for retirement as a whole, how much you should save each year, and how to know if you’re on the right track.

So, how much should I save for retirement?

As a rule of thumb, by the time you reach the full retirement age of 67, you should have about 10 times your pre-tax annual income in your retirement savings accounts. But this could be more or less depending on the factors we outlined above — retirement age, pre-retirement income, and retirement lifestyle.

For instance, if you don’t plan on retiring until you’re 70, you might only need eight times your annual income saved since you’ll have fewer years of retirement. You’ll also have three extra years to save and your monthly Social Security benefit will be higher. 

On the other hand, if you decide to retire at 62, you’ll only be receiving 70% of your full Social Security income. You’ll also need to stretch out your savings over a longer period of time and you’ll have less time to save. In this case, you might need 14 times your annual income at 62. 

As you can imagine, the lifestyle you plan on having in retirement is also going to affect this number greatly. Going back to the example of retiring at 67, the 10 times saving recommendation assumes you’ll have a similar quality of life as you have in your working years. With lifestyle adjustments, your needs could go down to eight times or up to 12 times your annual salary.  

The third major variable is your annual income. Fidelity research found that people who made more money tended to spend a lower percentage of their pay while working, so they may not need to replace as much of their income in retirement to maintain a similar lifestyle. 

Make sure you take these factors into consideration when you plan how to build your retirement fund. You can also use a resource like Vanguard’s retirement calculator to get a sense of how much to save.

How much should I save each year for retirement?

Family happily bonding at home

How much you need to save each year depends on how early you start, how steady your employment is, and how you invest your money. 

As a general rule, most major financial institutions recommend saving 15% of your pretax income. Part of the 15% savings rate could come from your employer match to your 401(k) or IRA contributions. This percentage assumes you start saving at 25 years old and that you invest 50% of your savings in the stock market.  

If you haven’t started saving for retirement yet, it’s never too late to begin. Depending on your financial situation, it may be wise to consult a financial expert for personalized recommendations. 

Most people will not have a perfectly linear journey. There will be ups and downs along the way. Some years you’ll be able to save more than other years. Some years your investments will do great, while others they may not. That’s all part of the process. 

How do I know if I’m on track for retirement?

Ten times your annual income is a nice and neat answer to the question of “How much do I need to retire?” But how do you know if you’re on track to meet your goals?

This is where milestones come into play. Trying to keep tabs on where you are against certain milestones can help you make adjustments along the way. As a general rule, you can shoot for the following savings milestones:

  • One times your annual income by 30

  • Three times your annual income by 40

  • Six times your annual income by 50

  • Eight times your annual income by 60

  • 10 times your annual income by 67

If you’re behind on your retirement planning, don’t panic. Just make some adjustments to your savings plan and try to catch up. There’s still time. 

How much of my income will be replaced by my savings in retirement? 💰

Social Security can be a major source of income for retirees, but it probably won’t pay for everything. The numbers we’ve talked about so far have all assumed you’d be getting Social Security, but they haven’t taken into account any pensions, part-time work, or any other side income streams you may have. 

For most of us, our savings will be responsible for replacing 80% of our income once we make it to retirement — but any other income sources you have may change this. 

Tips to reach your goals 🏅

Now that you know how much you’ll need to retire, here are some tips to make sure you get the most out of your efforts: 

  • Use tax-advantaged accounts, like an employer-sponsored 401k or an individual retirement account (IRA), like a Roth IRA. With a Roth IRA, your withdrawals in retirement will be tax-free. 

  • Take advantage of your employer match if it’s offered. A few percent may not sound like a lot, but it really adds up. 

  • Start saving as early as you can. Compounding your investment returns over time is very powerful. 

  • If you’re feeling overwhelmed, talking to a financial advisor can help you get started.

  • Try not to make withdrawals from your retirement accounts unless you absolutely have to. Setting up an emergency fund can keep you from dipping into your retirement savings when times get tough. 

  • Choose a risk tolerance for your investments that matches your goals and timeline. Short-term volatility in the stock market is normal, and investing at a suitable risk tolerance will help you stay calm and make smart decisions for your retirement goals.  

Get ready for permanent time off 😎

Senior couple watering the plants

Whether you look forward to retirement or you’d rather push it off as long as possible, you can’t deny that it will be here someday. Finding the answer to “How much do I need to retire?” is the first step in getting prepared for it. 

Take into consideration your goals for your retirement age and lifestyle, and judge by your current income how much you’ll need to save. If you’re not sure how much to put away each year or how to budget for retirement savings, consult with a financial advisor. Even if you start later in life, you can develop a plan that works for you. 

Retirement savings is one key aspect of financial literacy that many of us don’t learn about until we’re older. Get your retirement plan in place while helping your kids build strong financial literacy for their own futures. Greenlight can help them learn to invest early on for a smooth and steady financial future. Sign up and get one month on us!

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