How Much Should You Save For Retirement?

One of the most common questions in personal finance is: "How much do I actually need to retire?" While the answer is different for everyone, there are several frameworks that can help you find your target.

The 80% Rule

A traditional rule of thumb is that you'll need about 80% of your pre-retirement annual income to maintain your standard of living in retirement. This assumes that some expenses (like commuting and saving for retirement itself) will decrease, while others (like healthcare) might increase.

The 4% Rule

The "Safe Withdrawal Rate" or the 4% rule suggests that you can safely withdraw 4% of your total retirement nest egg in the first year of retirement, and then adjust that amount for inflation each year after, without running out of money for at least 30 years.

To find your target using this rule, multiply your desired annual retirement income by 25.

Factors That Influence Your Number

1. Desired Lifestyle

Do you plan to travel the world or live a quiet life in a paid-off home? Your lifestyle choices are the biggest driver of your retirement needs.

2. Longevity

With medical advancements, many people are living well into their 90s. Planning for a 30 or even 40-year retirement is increasingly necessary.

3. Healthcare Costs

Even with Medicare, out-of-pocket healthcare costs can be a significant portion of a retiree's budget.

Conclusion

The best way to know if you're on track is to run the numbers regularly.

Use our Retirement Calculator to see how your current savings and contributions stack up against your goals!