How much do I need for retirement?

If you look up “How much savings will I need to retire,” you’re likely to find dozens of answers from a variety of sources. But every person’s vision of retirement is different. Instead of reading about how much others think you’ll need, why not take a few minutes to learn how to arrive at your own estimate — based on your individual circumstances, needs, goals and desired retirement lifestyle. Once you have a number in mind, you’ll have a more solid foundation on which to build a retirement savings plan that works for you. This article can help by telling you about:

• A calculator that can quickly help define your retirement savings number

• Rules of thumb to help better understand your needs

• How to increase the chances of meeting your retirement goals

Retirement planning rules of thumb

Even if you’ve already used a calculator to arrive at a retirement savings goal, it help to know about different retirement planning guidelines. Why? Everyone's situation, circumstances, goals and needs differ, and importantly, no one can perfectly predict what will happen in the future. But by reviewing these guidelines, you can get a better understanding of the kinds of thinking and assumptions that go into retirement income planning.

• The 70-80% rule: This one is simple: aim for a retirement income that replaces around 70-80% of your pre-retirement annual income. People often need less in retirement because their houses are often paid off, there are no more work-related expenses, and there's no longer a need to save for retirement. While simple, this guideline won’t work for everyone — especially people who plan to increase their level of luxury in retirement.

• The 12X rule: Your savings should total 12X your annual income at retirement. So if you anticipate a pre-retirement income of $100,000 a year at age 66-67, you need $1.2 million. However, this guideline assumes that your savings will earn a rate of return on par with historical averages, along with a conservative withdrawal rate (around 4%) that lets you maintain your lifestyle in retirement while slowly depleting your principal.

• The 25 times rule: Try to accumulate savings equal to 25 times your planned annual expenses in retirement (which, may be lower than your pre-retirement spending). Based on historically average rates of return, this may allow you to withdraw 4% each year, for 30 years or more.

• The 4% rule: This “rule” forms the basis for many retirement guidelines, and suggests that a person can withdraw 4% of their retirement savings in the first year of retirement and adjust subsequent withdrawals for inflation in the following years (in other words, if inflation is 3%, the next year's withdrawals are 3% higher). So, for example, if a person has $1 million, they can withdraw the inflation-adjusted equivalent of $40,000 per year. At this rate their savings could last for approximately 30 years —but it’s important to note that there are risks this model doesn’t take into account, including the possibility of unprecedented periods of inflation or prolonged market downturns.¹

Key factors in estimating your retirement savings needs

Still not sure exactly how to set and reach your goals? You’re not alone. In a recent Guardian Mind, Body, and Wallet webinar, David Chae, Clinical Instructional Designer at Spring Health, pointed out that a lot of us need help navigating feelings of anxiety around money. “There’s no finish line when it comes to money. That’s why it can feel so stressful.” But as Chae notes, you can help by “learning to focus on what’s in your control and let go of what isn’t.”²

Having said that, it’s good to have an initial estimate of what you'll need to help ensure a confident retirement. To calculate a more accurate number, you'll want to consider several key items, including your expected retirement age, your desired retirement lifestyle, your estimated expenses, and what other sources of cash flow you'll have, such as your Social Security benefit. Once you have these answers, you'll be in a better position to home in on a more accurate estimate.

When will your retirement start, and how long will it last?

First, think about when you’d like to retire. Will you aim for the 2024 median and retire at age 62³ — the median retirement age in 2024 — or do you plan to continue working to at least age 65? On the other hand, maybe you’d like to stop working before 55. Clearly, nobody knows exactly what the future may hold, but take a best guess based on your current circumstances and goals.

A recent Guardian survey found that 51% are concerned about having their retirement savings last as long as they need.⁴

Assuming you don’t want to run out of money in retirement, you also should consider how long your retirement might last. It can be a tricky calculation, but it’s important to have some idea of how many years you’ll have to rely on your savings in retirement. Think about the average life expectancy in your family, your current health status and the expected lifespan of people in the same socioeconomic group as yourself.

You should also consider this piece of actuarial data from the Social Security Administration⁵: At a retirement age of 62, a male can expect to live for another 19.6 years, and a female 22.5 years. But that doesn’t mean you’ll only need income for about 20 years. It’s essential to remember that there’s a wide variation from that average — and in fact, the fastest growing age demographic in the US is the 85+ age bracket.⁶ That’s why you should strive to make your funds last longer, and most financial professionals say you should aim to make your retirement savings last at least 30 years.

If I retire at age 65 with $1million in savings, how much could I withdraw — and for how long?

• <2% Less than $30,000/year — Can last indefinitely: At this very conservative rate, historical market returns would more than make up for withdrawals, so principal isn’t depleted; your money is likely to last far beyond your life expectancy.

• 3% $30,000/year — 30+ years: Based on historical performance levels, 3% withdrawals will deplete principal very gradually, and in many years, not at all.

• 4% $40,000/year — 30 years: With proper portfolio construction, there’s a 90% chance that this level of withdrawal could be sustained for 30 years.⁷

• 5% $50,000/year — Less than 30 years: At this withdrawal rate, you shouldn’t count on being able to sustain withdrawals much beyond 20 years.

• >5% Over $50,000/year — ???: Withdrawing more than 5% each year risks immediate principal depletion, and your money could run out in less than 20 years.

Based on common withdrawal strategies first developed by William Bengen in the 1990s. Assumptions include a diversified portfolio with no more than 75% stocks and at least 25% bonds⁸; withdrawals rise yearly with inflation, to keep purchasing power stable⁹; Market returns in line with historical averages for diversified portfolios, which generally range from 6-8% before inflation, which historically has been 2-3%.¹⁰ However, it’s important to note that a historically anomalous, prolonged market downturns and/or sustained periods of high inflation would change the calculus in each scenario.

Your lifestyle will likely change after you stop working

Next, think about what type of lifestyle you’d like to have in retirement. Do you plan to stay in your current home and maintain your current lifestyle? Do you hope to move to a more upscale resort location where housing costs may be higher? Are you looking forward to extensive travel or pursuing costly hobbies? Alternatively, do you intend to downsize and cut back to minimize your financial needs? These are important questions. Your lifestyle in retirement will, in large part, determine your expenses in retirement. And your expenses in retirement will determine how much savings you will need.

How much income will I need, based on my lifestyle in retirement?

How much will you spend during retirement?

Estimating your expenses during retirement will take more than a few minutes, but it's central to the planning process. So be sure to take time to go through the following steps. Keep in mind that this is not an exact science and that your goal is to come up with a solid ballpark estimate that you can "tweak" as your life circumstances change and you get closer to retirement age.

• Start by recording your current monthly expenses. This will serve as a baseline for estimating your expenses in retirement.

• Think about the impact of inflation. Generally, it's advisable to assume an average inflation rate of about 3% per year.¹

• Consider any anticipated lifestyle changes — such as downsizing or relocating — and how they might affect your expenses.

• Add in healthcare costs, which tend to increase with age. How much will you spend on insurance, out-of-pocket costs and more?

• Evaluate your outstanding debts — including mortgage payments — and figure out whether they’ll be paid off by the time you retire.

• Think about any plans you have for retirement — such as travel and new hobbies — and include these discretionary expenses in your calculations.

• Consider any other potential expenses, from helping an adult child and their family, to buying or leasing a new car.

Finally, assume that there will always be unanticipated expenses, and build in some sort of cushion to your desired annual retirement income in order to reflect this reality.

Consider additional retirement income

Think about what sources of monthly income you’ll have in retirement other than interest, dividends and earnings generated by your savings and investments. These might include a pension, rental income, part-time work, or even support from a family member.

What about Social Security?

The average monthly Social Security income for retired workers in 2024 was about $1,975/month.¹¹ That typically only covers a portion of monthly expenditures: the average retired household spends approximately $5,000 per month, including housing, healthcare, food, and transportation.¹² You should also take into account the fact that Social Security benefits are poised to be reduced substantially when the trust fund reserves run out, which is projected to happen by 2033. Unless Congress acts before then, cutbacks of 23-24% are expected for all recipients.1³ That’s why many financial professionals tell their clients not to rely on Social Security benefits alone to fund their retirement.

How much income will you have to generate from your retirement fund?

Only half of US workers are confident they know how much income they’ll need in retirement.¹⁴ Fortunately, there’s a fairly simple way to calculate approximately how much retirement income you'll have to generate via your savings and investments: Simply subtract your non-savings income from your estimated expenses. For instance, if you estimate your living expenses at $90,000 per year and expect to earn a total of $45,000 from Social Security income and part-time work, you'll have to generate $45,000 (after taxes) from your retirement funds to make up the difference. Of course, any money you "draw down" from your savings will reduce the amount of income you'll have to generate, but — as a general guideline — it's preferable not to draw down savings unless absolutely necessary.

Ways to start achieving your retirement savings goals

By following the steps above, you should be able to arrive at a ballpark savings goal — approximately how much money you’ll have to save to help ensure the type of retirement you want. The next step is to develop a retirement savings plan that can help you reach your goal. Here are some basic tips:

• Start by setting clear retirement goals: Determine how much money you would like to have at retirement and the age at which you plan to retire. This will help you to estimate the savings required and set a timeline for achieving your goals.

• Set an annual savings goal: While there is no iron-clad rule, many financial professionals recommend that you try to save 15% of your gross annual salary every year — starting at or around age 25.

• Estimate how much you can afford to save: Calculate how much money you can afford to apply to retirement savings each month; in other words, how much is left over after accounting for all living expenses, debt repayment and other ongoing expenditures. If you're unhappy with the number, consider where you might economize to free up additional funds.

• Take full advantage of employer-sponsored retirement plans: If your employer offers a 401(k) or other retirement plan, try to contribute the maximum allowable amount each year, if at all possible. And remember: Matching contributions offered by your employer add to your savings.

• Take full advantage of individual retirement accounts: If you’re self-employed or have the funds to supplement an employer-sponsored retirement plan, open an individual retirement account. IRAs offer tax advantages and a broader range of investment options. Traditional IRAs provide tax-deferred growth, while Roth IRAs offer the potential for income tax-free withdrawals in retirement.

• Diversify your investments: Try allocating your retirement contributions across a diversified portfolio of investment options offered within the plan. Consider using a combination of stocks, bonds, mutual funds and FDIC-insured vehicles to balance risk and potential returns. Consider your risk tolerance and investment goals when selecting the appropriate investment mix — and consult with a financial professional if you need help.

• Regularly review and adjust your plan: Review your retirement accounts periodically to help ensure alignment with your evolving financial situation and goals. Adjust your contributions and investment allocations as necessary. And, should you need help, think about consulting a financial professional or tax professional.

Are you on track to meet your retirement savings goal?

You’ll probably need to do some homework — perhaps with help from a financial professional — to get a good handle on the answer. In the meantime, consider this suggested savings timeline from Investopedia:

• Age 30: one time your annual salary at the time.

• Age 40: three times your annual salary at the time.

• Age 50: six times your annual salary at the time.

• Age 60: eight times your annual salary at the time.

• Age 67 (full Social Security retirement age): ten times your annual salary at the time.¹⁵

Another way to look at the question is to compare your current retirement savings to others in your age group. According to Investopedia, the average balance for all 401(k) plans in 2024 was $148,153, but as you might expect, older savers tended to have significantly more than their younger counterparts:¹⁶

Average 401(k) Plan Balances by Age

You may or may not be ahead of your age group in terms of savings, but again, the only retirement balance that really matters is the one that helps you achieve your goals. How do you get there? As David Chae of Spring Health explains, it’s important develop a “positive mindset” around money by “being honest without judgment — celebrating your wins while not beating yourself up for the losses.”¹⁷

Guardian can help you figure retirement out

This information can help you estimate your retirement savings needs and develop a retirement savings plan. However, as you get deeper into the process, you may have financial issues and retirement planning questions that you’d like to discuss with a financial professional. The fact is, people working with a financial professional feel a lot more confident about where they are.¹⁸

If you don’t currently know such a professional, Guardian can help. A Guardian Financial Professional will listen to your needs, help define your goals, and work with you to better understand the retirement planning process and make the right decisions. Here’s how to find someone near you:

Get more information on planning for retirement

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