How much should you save for retirement?

How much should you save for retirement?

Or instead of asking how much, consider asking how long.


It’s a million dollar question; one we could only wish came with a clear, cut-and-dry answer. How much do you need to have saved to enjoy the retirement you’ve always dreamed of? Experts suggest having anywhere from $1 million to $1.5 million saved for the golden years of your life, but when it comes to retirement planning, there’s no such thing as a one-size-fits-all solution—as nice as that might be.

We all have our own set of special circumstances that affect how much we need to have saved in order to enjoy a stress-free, financially-secure retirement. And how much money we need to have saved depends a lot on our future—despite the fact that future-telling crystal balls are hard to come by. All of this uncertainty leads to rampant anxiety and stress among pre-retirees, with only a quarter of today’s workers expecting to achieve the level of income they’ll need in retirement [1]. What’s more, only 13 percent of workers have a written retirement plan they follow, even though studies show that having written plan in place can help workers feel more confident that they’ll retire to a comfortable lifestyle [1]. Clearly, planning ahead can help ease some of the anxiety that comes along with approaching retirement. And luckily, there are easy ways to get started.

Determining how much money you need in retirement

Before calculating how much money you’ll need to live a comfortable retirement, you’ll want to have a rough idea of a few important factors: your current spending and saving levels, what your desired retirement lifestyle looks like, and your life expectancy. These factors can and will be used as the starting blocks for helping you come up with a strategic retirement plan. So even if you can’t see exactly what the future holds, you’ll have a rough estimate of how much you’ll need to get there.

· Current spending and saving levels

Roughly two in five pre-retirees are “not at all sure” how much monthly income they’ll need in retirement, and an even smaller percentage determines how much they’ll need based on historical trends or data-backed facts rather than “guestimates” [2]. This lack of thinking ahead has caused the projected income replacement in retirement among current workers to tumble to just 64 percent—meaning today’s workforce is on track to replace only 64 percent of their current income in retirement [3]. But what can be done to solve this?

It all starts with a little bit of forward thinking. Add your typical monthly expenses—including mortgage payments, monthly bills, groceries, etc.—into a spreadsheet and think critically about whether those expenses will go up or down in retirement. Give your best guess as to what those expenses will amount to in the future, then add on any additional “lifestyle” expenses you might encounter in retirement—like frequent travel or weekly trips to the golf course—and add the numbers together.

You now have a rough idea of the funds you’ll need to pay for basic expenses in retirement. Multiply the number by 12 for your necessary yearly replacement income, and determine where this falls in regards to your current income. Experts suggest aiming to replace roughly 80 percent of your pre-retirement income, but you may be able to save more or less based on your current spending/saving habits. For example, if you are already saving 15 percent of your current salary, you may not need such a high income replacement—especially once Social Security benefits come into play.

· Life expectancy

This is one factor that you likely won’t have an exact answer for, but an estimate is always better than a complete lack of planning. How many years of retirement do you need to save for?

Take a look at your family history and determine the average age of death in your family to get an idea of what your own life expectancy may look like. For example, someone whose family members consistently live well into their 90s will want to prepare for a longer retirement than someone with a family history of early or premature death. Just remember to keep in mind that lifespans are always increasing thanks in part to advancing medicinal research, technology, and treatment options. In fact, a couple that’s 65 today has almost a 50/50 chance of at least one member reaching age 90 [4]. Make sure you’re prepared for a long life so you outlive your money—not the other way around.

Next, determine when you’d like to retire. If you would like to retire by the time you are 55 and estimate that you’ll live until age 85, you’ll need to prepare to fund 30 years of retirement. But how much will that cost? Take the amount of yearly income you’ll need to replace (calculated in the step above), and multiply that by your desired years of retirement. Ta-da! You now have a ballpark retirement savings number that you’ll want to start working towards.

For better or worse, retirement planning and preparation is deeply personal. While there may not be a specific number pre-retirees need to hit before truly feeling retirement ready, there are a variety of ways we can increase our retirement confidence—and put that nasty anxiety to bed once and for all.