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While Americans estimate they need an average of $1.46 million to retire comfortably, the reality is that the average amount in retirement accounts is $88,400.¹ This gap shows the need to start planning and saving for retirement early on.

Figuring out how much you need to save for retirement helps you stay on track. Start by asking yourself, “How much money do I need to retire?” Then make a plan and start saving and investing for your retirement.

How much money you need to retire depends on several factors, such as when you plan to retire, your lifestyle, and how much you can save each month.

Let’s break down what you need to know to calculate your retirement savings goal.

How to create your retirement timeline

The first thing you need to do is determine your timeline or when you want to retire. It’s not just about determining the age you’ll retire. It’s about understanding how your retirement age will impact your savings and lifestyle now and during your retirement.

Some may dream of retiring early to travel or pursue hobbies, while others may choose to work longer to increase their savings. Some of the factors you may want to consider include:

  • Your current age
  • Your annual income
  • How much you already have in retirement savings
  • Your expected lifespan
  • The quality of life you want in retirement

The age at which you retire greatly impacts how much you need to save. The earlier you retire, the more years of retirement you need to fund. Retiring later means your savings have more time to grow, and you’ll have fewer years relying solely on your retirement nest egg.

For example, retiring at 62 rather than 67 means five more years without a paycheck and five fewer years for your savings to compound. On the flip side, delaying retirement from 67 to 70 reduces the years you need to fund and allows more time for your money to grow.

While you can’t always control when you retire, it’s an essential factor in your savings calculations.

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Calculating your retirement income goal

Once you know when you want to retire, you can start figuring out how much money you need to live on each year. Take the following steps to calculate your retirement income goal.

  • Estimate your annual living expenses in retirement. Consider any lifestyle changes, such as downsizing your home, traveling more, or taking on new hobbies. Also, factor in things like health expenses, housing needs, and long-term care.
  • Figure out your income sources. Consider Social Security, pensions, investment funds, and any part-time work. The goal is to have a clear picture of your required annual income.
  • Determine your targeted savings amount. Do that by multiplying your estimated annual income by the number of years you expect to be retired. A common rule of thumb is to aim to replace about 80% of your pre-retirement income.² So, if you make $100,000 per year, you’d want a retirement income of around $80,000 per year.
  • Adjust your savings target accordingly. Depending on your unique retirement plans, you may need more or less than 80%. Aim higher if you have a mortgage, want to travel frequently, or plan to leave an inheritance. But if you plan to significantly reduce your spending, downsize your home, and live frugally, you may get by with less.

Designing your ideal retirement lifestyle

Your retirement lifestyle goals are key to determining your ideal retirement income. Do you want to maintain your current standard of living? Or do you plan to travel the world or buy a second home? Or are you envisioning a simpler life in a tiny home or a low-cost area with minimal expenses?

Some retirees find their expenses decrease in retirement as they spend less on things like commuting, new work clothes, and retirement savings contributions. Others may see expenses like healthcare, travel, and hobbies increase.

Whether it’s moving to a beachfront property, traveling the world, or simply enjoying leisure time with family and friends, your retirement dreams will influence how much you need to save. Be careful not to underestimate or overestimate what you need to live that ideal lifestyle so you can save enough for it.

Determining your retirement savings target

Once you know your ideal retirement age and spending needs, you can calculate your retirement savings by age. The sooner you start to save, the more your money can grow through compound interest.

Many experts suggest saving 10 times your final salary by age 67.² So if you make $100,000, you’d need $1 million saved by 67. Other savings milestones experts recommend are to have one year of your annual salary saved by age 30, three times by age 40, and six times your annual income by age 50.

A good rule of thumb is to save at least 15% of your annual income towards retirement to reach your savings and investing goals.³ Adjusting your savings and retirement goals as your career progresses ensures you stay on track to meet your retirement savings objectives.

Retirement spending phases

However, your personal retirement savings target may be higher or lower. Consider the three phases of retirement spending that most retirees experience as you make your retirement spending plan:

  • Higher spending in your earlier retirement years as your activities, like travel or educational pursuits, stay strong.
  • Modest spending for a long period after those early years as you stay closer to home.
  • Higher spending later in retirement due to possible increased medical or long-term care expenses.⁴

Boost your retirement savings

Even if your current savings aren’t on track to meet your retirement goal, there are ways to boost your progress.

  • Open an IRA account. A Traditional or Roth IRA allows you to save for retirement and is separate from a 401(k). They also come with some tax advantages, but the IRS limits how much you can contribute each year. Saving as much as possible in these accounts each year can help increase your retirement savings.
  • Max out 401(k) contributions. If you have one, contribute to your 401(k) up to the yearly limit. Aim to save at least enough to get any employer match available to you. Check with your employer to learn how much they’ll match.
  • Review your options with a financial advisor. A financial advisor can help you create a personalized retirement plan and maximize your savings and investment options. The more complex your retirement finances will be, the more critical it will be to get the advice of a financial advisor.

Planning your retirement finances is important

Calculating how much money you need to retire requires careful planning around your ideal retirement age, current and retirement lifestyle, and your savings and investment opportunities.

Understand your unique retirement goals and consistently work toward them. That way, you can help ensure you’ll have the nest egg you need to enjoy a comfortable retirement. Want to get started early? Here’s how to plan your retirement in your 20s and 30s to maximize your savings.

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Opinions, advice, services, or other information or content expressed or contributed here by customers, users, or others, are those of the respective author(s) or contributor(s) and do not necessarily state or reflect those of The Bancorp Bank, N.A. and Stride Bank, N.A. (“Banks”). Banks are not responsible for the accuracy of any content provided by author(s) or contributor(s).

¹ Information from Northwestern Mutual’s “Planning & Progress Study 2024,” as of April 10, 2024; https://news.northwesternmutual.com/planning-and-progress-study-2024

² Information from CNBC Select’s, “Here’s how much money you should have saved at every age,” as of April 4, 2024; https://www.cnbc.com/select/savings-by-age/

³ Information from T. Rowe Price’s, “What Percentage of My Income Should I Save for Retirement?,” as of April 17, 2024; https://www.troweprice.com/personal-investing/resources/insights/what-adjustments-should-i-make-my-retirement-savings.html

⁴ Information from Investopedia’s “Will Your Retirement Income Be Enough?,” as of April 4, 2024; https://www.investopedia.com/retirement/retirement-income-planning/

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