So, you need to save for retirement. The question is: How much do you need to save? Unfortunately, that’s hard to answer. In fact, according to a survey this year by, more than six in 10 Americans don’t know how much money should be in their retirement accounts before they say goodbye to the workforce for good. 

If you’re not sure how much you should save, there are a few ways you can calculate your magic number. Here are three of them: 

1. Plan to save 10 times your income

Many financial advisers recommend putting aside 10 times your ending salary for retirement. So, someone with a $20,000 pre-retirement salary would need $200,000, and someone with a $60,000 salary would need $600,000. 

If you take this approach, you’d need to estimate your ending salary. If you assume your income will go up around 2% annually, you can get a pretty good idea of what your salary will be when you retire. Just start with your current salary, add 2% to it, then add 2% to that number and keep going for however many years you have until retirement. 

Say you’re earning $41,000 and are 10 years away from retirement. You’d be making close to $50,000 by the time you’re ready to leave work. So, using this metric, you’d need to have about $500,000 saved. 

2. Use the 4% rule to figure out how to replace 80% of income

The 4% rule is aimed at ensuring you don’t take too much out of your retirement accounts and end up broke. If you follow the 4% rule, you take 4% out of your retirement account in the first year you retire. Then, increase withdrawals by the amount of inflation each year.

You can use the 4% rule to set your retirement savings goal by working backward. Most experts suggest you need around 80% of pre-retirement income annually in retirement — although this may be too low for some retirees. If you assume you’ll need 80% and Social Security will replace 40% (which is what it’s designed to do), you’d need to produce the other 40% with your savings. 

You’ll have to figure out what nest egg you need so that a 4% withdrawal in year one equals 40% of pre-retirement salary. If you expect your pre-retirement salary will be about $50,000, 40% would be $20,000. Now, figure out how much money you’d need so that withdrawing 4% of it gives you $20,000. You can do this by multiplying $20,000 by 25. This calculation shows you’d need to have $500,000. 

Use this calculation with whatever income you want to have in retirement. If you think you’ll need 100% of your pre-retirement salary, Social Security will still produce only 40% of it. You’d need to come up with the remaining 60%, or $30,000. Multiply $30,000 by 25, and you’ll see you would need $750,000. 

3. Estimate the income you’ll need and use the 4% rule

If you want to keep your lifestyle pretty much the same in retirement, you can get a pretty good idea of how much money it would take. Just look at what you’re spending now, subtract for any expenses that will disappear, and add on costs you’re likely to incur as a senior.

If you’re currently spending $45,000 a year but $13,000 of that goes to your mortgage, which you expect to pay off, you’d need about $32,000 to keep your lifestyle mostly the same. But, you’ll need to add in money for healthcare (the average retiree spends about $4,274 on premiums and out-of-pocket costs annually). And you may want to set aside some additional funds for travel and hobbies.

If you wanted about $3,000 a year for travel, this would mean you would need close to $40,000. Use a calculator to adjust this number for inflation and figure out how much Social Security will provide. Then, you’ll know how much you need from your savings. Multiply this number by 25 (assuming you’ll follow the 4% rule), and you’ll know what your retirement goal should be. 

Set your savings goal today

Now you know a few different ways to calculate your retirement nest egg. Pick one, or try all three and see what amount you should save under each approach. Then, set an ambitious savings goal and work toward achieving it so you can enjoy your life as a senior without any financial concerns. 

The $16,146 Social Security bonus most retirees completely overlook 
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,146 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.


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