How Much Money Do I Need to Retire Comfortably? 

Retirement could be one of the most important goals you’ll ever set for yourself. Like many people, you might struggle with one key question: How much money will I need to retire comfortably?  

The answer depends on various factors, such as your desired lifestyle, expected expenses, and how long you anticipate living in retirement. Below are a few guidelines that can help you estimate how much money you will need to achieve a financially secure retirement: 

1. The 70-80% Rule: Estimating Your Retirement Income Needs 

A common rule of thumb for retirement planning says that after you retire, you’ll need 70% to 80% of your preretirement income. For example, if you earn $100,000 per year before you retire, you may need $70,000 to $80,000 annually to maintain a similar lifestyle in retirement. This estimate assumes that some expenses, such as commuting or other work-related costs, will decrease or go away, but you’ll still need to cover essential daily living expenses, healthcare and leisure activities. 

2. Estimating Your Retirement Expenses 

To get a clearer picture of how much retirement income you’ll need, it’s important to list out your expected retirement expenses. Some categories to consider include: 

• Housing: Will your mortgage be paid off? Will you have rent to pay? What about property taxes and homeowners’ or renters’ insurance? 
• Healthcare: Out-of-pocket medical expenses often rise in retirement, even with Medicare covering a good portion of these expenses. Consider the costs of insurance, prescriptions, and long-term care. 
• Basic living expenses: Include groceries, utilities, transportation, entertainment, and more. 
• Travel and leisure: Many retirees want to spend more time traveling, so factor in these additional costs. 
• Unexpected costs: Plan for emergencies, such as home or car repairs, as well as the possibility that you will provide financial help to family members. 

3. The 25x and 4% Rules: How Much to Save 

According to the “25x rule,” to live comfortably for 30 years in retirement, you will need savings of at least 25 times the annual amount you plan to spend in that life stage. For example, if you plan to spend $80,000 annually in retirement, you will need savings of at least $80,000 times 25, or $2 million.  

The 25x rule assumes that you will follow the “4% rule” in retirement. The 4% rule suggests that you withdraw 4% of your retirement savings in your first year of retirement and then adjust the amount of your previous year’s withdrawal for inflation each year after that. According to the 4% rule, if you stay with this approach, you can generally expect your savings to provide you with sufficient retirement income for about 30 years.  

These rules of thumb can point you in the right direction, but there’s no one-size-fits-all approach to figuring out how much of a nest egg will allow you to retire securely. For example, the 25x rule doesn’t consider that you might have retirement income sources beyond savings, such as Social Security, a pension or part-time work. You need to take a more personalized approach to determining how much to save for retirement, based on factors such as your desired retirement lifestyle and projections for market conditions, inflation and healthcare costs. 

4. Factoring in Social Security and Pensions

Social Security and any pensions you may receive could play a critical role in supplementing your retirement income from savings. The average Social Security retirement benefit is around $1,800 per month (or $21,600 annually), but your benefit will vary depending on your earnings from employment and when you start collecting. Delaying Social Security until age 70 will maximize your benefit. Subtract the amount you’re projected to receive from Social Security and pensions from your total retirement needs to see how much income you’ll need from savings. 

5. Account for Inflation

When planning for retirement, you must account for inflation, which erodes the value of your savings over time. Historically, inflation has averaged around 3% per year. Ensure that your retirement investments can outpace inflation by keeping a balanced portfolio of stocks, bonds and other income-generating assets that grow over time. 

6. Estimating How Long Your Retirement Will Last

The length of your retirement is a key factor in determining how much you’ll need to save. With life expectancies increasing, many people will spend 20 to 30 years or more in retirement. If you retire at 65, you may need your savings to last into your 90s or beyond. Consider your family history, health and lifestyle when estimating how long your retirement might last. 

7. Working with a Financial Planner

Determining how much money you will need for retirement involves many variables, and no two retirement plans are the same. A financial planner can help you assess your savings, create a detailed retirement plan and adjust your plan as needed in the future. A planner can also help you navigate complex decisions, such as when to start Social Security, how to invest and how to withdraw funds in a tax efficient manner. 

WAEPA’s Free Financial Wellness Program

WAEPA members have access to a free Financial Wellness Program through our partnership with Ernst + Young (EY). This program includes access to tools and financial advisors to help manage day-to-day finances and work towards long-term goals.