Picturing Retirement: How Much Will You Need?

Saving for retirement is a smart move. But if you’re like many individuals today, you might be unsure about how much you may need to save1 so that you can enjoy a secure retirement.

Where Should You Begin?

To help you determine how much you'll need to save, consider this: Many financial professionals recommend that in general, retirement savers will need between 70% and 80% of their final annual income to maintain their current standard of living in retirement. Of course, this is just a guideline, but it may help to use this number as an annual retirement income estimate. When you consider that you could be retired for more than 20 years, it's easy to see that you're going to need to have a lot of money set aside for retirement.

When Will You Be Ready to Retire?

Although most people assume they will retire in their 60s, that might not happen if they don't have the finances to support their desired standard of living and retirement income goals.

The Role Your Lifestyle Will Play

How much money you’ll need throughout your retirement will depend on your expenses throughout retirement and your personal plans. Certainly, you’ll spend more money if you cruise the world than if you cruise your block with your grandchildren. But remember: Even simple relaxation will require a bit of planning.

Your Financial Landscape
When you are no longer bringing home a paycheck, your financial landscape may look different than it does today. Some expenses associated with your working life may be reduced or eliminated—but others won't go away. For example:

  • You'll no longer be paying Social Security or payroll taxes.
  • Your mortgage or other debts may be paid.
  • If you own a home, your property taxes will undoubtedly increase.
  • Your health care costs could rise significantly, especially if you have to pay for health care-related expenses previously covered by your employer.

The Role Inflation Will Play

Thanks to the effects of inflation, over time, every dollar in your pocket will buy fewer goods and services. So when estimating how much you’ll need to retire, it’s essential to consider how inflation—the general rise in the price of goods and services—can erode the buying power of each dollar in your retirement account.

Because your cost of living will continue to rise throughout your retirement, you’ll probably need to increase the amount you withdraw from your retirement account each year you’re retired just to maintain your standard of living.

Your Sources of Retirement Income

Social Security
Social Security may cover some of your needs in retirement, but those benefits are not guaranteed—and may not begin as soon as you might like. For example, individuals born in 1960 or later cannot collect "full retirement benefits" unless they wait until age 67 to start receiving their benefits. (If you begin collecting benefits before your full retirement age, you will receive reduced benefits for the rest of your life.) For an estimate of your benefits, call the Social Security Administration at 1-800-772-1213 or visit www.ssa.gov.

Pension Plan
If you participate in a pension plan from your current employer or a previous one, you may have a reliable source of retirement income to supplement your Social Security benefit. However, since fewer employers are offering pension benefits, this option might not be available to you. If you are eligible for a pension, your employer can estimate your future benefit for you.

Your Retirement Plan
Chances are that your primary source of retirement income will be your own retirement savings. And a workplace-sponsored retirement plan is one of the smartest ways to save for a more financially secure future. So learn all you can about saving for retirement. Enroll in your workplace-sponsored retirement plan and be sure to increase your contribution rate as much—and as often—as you can.


1 In the 2011 Employee Benefit Research Institute ”Retirement Confidence Survey,” less than half (42%) of the respondents indicated that they and/or their spouse had tried to determine how much they need to have saved for a comfortable retirement.

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