Many people worry whether or not they’re saving enough money for retirement.
To make matters more complicated, there is a lot of conflicting information out there when it comes to retirement savings goals, the ideal withdrawal rate, and more.
When people start researching retirement savings, many of them just want to know “the number.” And when I say “the number,” I mean the total amount they have to save to feel comfortable retiring and not working for a few decades.
This number, of course, is going to be different for everyone. It depends on many factors, including your lifestyle, retirement age, and extra income sources.
If you take these into consideration, spend time assessing your current spending habits and goals, and invest wisely, you can be well on your way to reaching “the number” — whatever that looks like for you.
How Much Money Do You Need to Retire? Consider These Factors
When deciding how much to save for retirement, consider your post-retirement lifestyle, the cost of healthcare, your longevity, the age at which you want to retire, and whether or not you want to work part time while retired.
Your expected lifestyle
How do you want to live out your retirement years? Do you plan to travel the world or does working on your garden at home sound more your speed?
Most people think they’ll maintain the same level of spending when they retire, but it’s common for people to spend more when they leave their jobs because they often travel, eat out more, or pick up expensive hobbies.
In order to know what kind of lifestyle you want, it’s important to have a strong handle on the life you’re currently living. If you don’t track your spending or know how much your lifestyle costs every month, now is a great time to start.
It’s hard to project how much money you’ll spend in the future if you’re not sure how much you’re spending today. To get started, spend 2-3 months tracking all of your expenses and decide if that’s the level of spending you want to maintain for the rest of your life.
You might find you need to cut back a little now to save more for the future. Alternatively, you might find that you want your retirement years to be filled with more luxuries than you have today. Once you know the type of life you want in retirement, you can make a plan to save for it.
Related: How to Avoid Lifestyle Inflation
Healthcare
According to the HealthView Services, healthcare costs for a healthy 63-year-old woman retiring today and living to age 89 are projected at $362,607. That’s 29.9% more than a 65-year-old male, whose healthcare costs are estimated at $279,176.
Needless to say, whether you’re male or female, you could be facing large medical bills in your retirement years. Many people plan on paying for these costs with their Medicare plans. Remember, however, that you will have to pay for Medicare.
In addition to that, Medicare doesn’t cover everything. According to Consumer Reports, “If you want coverage for prescription drugs, dental, vision, or hearing care, you have to pay out of pocket or buy a supplemental policy or additional insurance.”[1]
One way to alleviate the cost of healthcare is to open a health savings account. You can also apply for a long-term care insurance policy when you turn 60.
However, the best way to reduce your healthcare costs is to take good care of yourself throughout your life. The healthier you are, the less likely you’ll experience chronic, expensive health issues in retirement.
Longevity
Another factor to consider when determining how much you need to retire is longevity. Due to advances in technology and medicine, people are living much longer today than in the past. According to Pew Research Center, projections estimate there will be 3.7 million centenarians (aged 100 and above) across the globe in 2050.[2]
That means that your retirement may very well be longer than 20, 30, or even 40 years.
A longer life generally means more expenses and medical costs. On the bright side, it might also mean you’ll get to enjoy the benefits of continued compounding interest on your investments.
Still, when you’re trying to figure out how much money you need to retire, it’s best to overestimate in case you’re among those in the current population who will live well past 100.
Your retirement age
When we think of “retirement age,” many people think of the age 65. However, there’s a growing population of people committed to the idea of retiring early.
Your retirement age is an extremely important factor when figuring out how much money you need to retire. The earlier you retire, the more you need to save. Additionally, some people get close to their retirement age and realize they’d like even more money saved, so they might work to age 70 or longer.
There is no right answer when it comes to what age to retire. Some people enjoy working and don’t plan on doing anything else. Others will pick up part-time employment just so they don’t have to trek to a 9-to-5 every day.
Whatever age you decide to retire, set a plan and then overestimate your savings to give yourself a cushion.
Other income sources
Many people are able to retire and supplement their retirement savings with part-time employment.
Of course, there are many ways to make an income in retirement. You can start a business, work at your favorite store and enjoy discounts, or choose from the various work-from-home jobs available today.
Many early retirees start blogs about their journey and earn an income from their websites. Others dabble in real estate investing, angel investing, real estate syndication, and more.
There are many ways to make extra money in retirement if you have the time and interest. Retirement doesn’t have to mean traveling every month or playing golf seven days a week. There are ways to satisfy your intellectual curiosity, network with other people, earn money, and build a post-work life you love.
Related: How to Become Rich: A Legitimate “Get Rich” Strategy for Real People
Retirement Savings Targets
In order to retire on time with enough savings, you’ll need to set a specific retirement savings target that takes all of the variables mentioned above into account.
Retirement Savings by Age
Fidelity is one of the best-known brokerage firms. Its rule of thumb is to save 10x your salary by the time you’re 67. Fidelity also recommends reaching retirement savings goals by specific ages:
| Age | Amount Saved |
| 30 years old | 1x your salary |
| 40 years old | 3x your salary |
| 50 years old | 6x your salary |
| 60 years old | 8x your salary |
| 67 years old | 10x your salary |
Retirement Calculator
You can also use one of these retirement calculators to see if you’re on track and how much you should be saving:
Withdrawal Rates
A withdrawal rate is the amount of money you’ll take out, or withdraw, from your retirement accounts. When you hear things like the “4% Rule” or the “3% Rule,” that amount refers to the percentage you’ll withdraw your first year of retirement.
After the first year, you’ll continue to adjust the percentage based on inflation, your returns, and other factors.
Should it be the 4% rule or the 3% rule?
Roger Wohlner, a financial writer at The Chicago Financial Planner, explains that “the 4% rule has come under fire in recent years by many in the industry. In my opinion, no rule of thumb like this should be strictly adhered to.”
What it really comes down to, Wohlner explained, is that a “detailed analysis of your retirement spending is needed to determine a truly safe withdrawal rate. This analysis should be updated periodically to ensure that it is still valid.”
According to Wohlner, “There are a number of factors involved, including investments, steady streams of retirement income such as Social Security and/or a pension, taxes, health, and your desired spending level in retirement among others.”
To put it another way, your withdrawal rate might be different from other people you know since each of these factors vary from person to person.
How to Start Saving for Retirement
There are many ways to begin your retirement savings journey. First and foremost, you’ll want to take advantage of any opportunities you may be overlooking.
Take advantage of your 401(k) match
The easiest way to start saving for retirement is to take advantage of your work-sponsored retirement plan. If your employer offers a 401(k) match, you’ll almost always want to participate.
With this type of program, your employer will match your 401(k) contributions up to a certain percent. For example, if your employer agrees to match contributions up to 4%, that means if you contribute 4% of your salary, so will your employer. In total, your 401(k) savings will be 8% of your salary.
That’s an immediate 100% return on your money just by contributing to your 401(k).
Save before you spend
It’s also important to pay yourself first. Put another way, save before you spend. If you have a work-sponsored retirement plan, that makes saving for retirement a little easier because it can automatically be deducted from your paycheck.
However, it’s also important to save on big-ticket items, especially over the long term.
Tanja Hester, an early retiree and author of the brand new book Work Optional: Retire Early in the Non-Penny-Pinching Way, says “If you can minimize your housing costs, or at least avoid upsizing and keep your costs steady, while at the same time increasing your income, you’ll find that it’s far easier to put money away.”
She also recommends to “keep the same car for many years or use public transportation, rather than trading up cars periodically. If you’re able to do that, you’ll save many thousands a year that you can bank instead.”
Increase your earnings
If you don’t feel like you’re able to save enough for retirement, focus on increasing your take-home pay. The first step you can take is to ask for a raise at work.
If the issue lies in a lack of opportunity within your industry, look for cost-effective ways to improve your current skills or develop new ones, like taking free coding classes online. In addition to that, there are numerous side hustles you can use to make extra cash.
Tanja Hester used this method to retire early. She and her husband were both political consultants and earned high incomes. However, instead of indulging, she kept her expenses low, which enabled her to save a large portion of her income and eventually retire early.
Hester says, “If you can keep your spending level but focus on earning more, and then bank those pay increases, you’ll save faster than you can imagine!”
Related: How to Retire Early: Reach Early Retirement in 7 Simple Steps
Seek guidance
If you find you need help along the way, you can also speak with a financial advisor or Certified Financial Planner™ (CFP®). Financial advisors can help you with your retirement planning in a variety of ways.
According to Roger Wohlner, “Components include a realistic retirement budget to fit your lifestyle and a thorough review of all financial resources that will be available to you.” For example, an advisor can walk you through retirement plan options like a 401(k), IRAs, pension, Social Security, and other investments.
Wohlner said that a financial advisor can give you advice about when to take your Social Security. They can also help you “develop a retirement withdrawal strategy” and manage your tax liability in retirement.
Of course, not all financial advisors are created equally. It’s important to find the best financial advisor for your needs. You can do this by asking them very specific questions, such as how they are paid and if they make money from selling insurance products.
What you want is to find an advisor who truly loves teaching people about personal finance, regardless of how much money their client makes. It’s also helpful to find an advisor who is fee-only, which means they charge a flat, monthly rate for their services.
Alternatively, you can find an advisor who charges you a low investment fee but does not try to sell you specific products and has a fiduciary duty to their clients. That’s how you’ll know if they have your best interests at heart.
Generally speaking, the Certified Financial Planner™ designation is the gold standard of the financial services industry.
It’s Never Too Early to Start Saving for Retirement
The guidelines mentioned above regarding how much money to save by each age are just that — guidelines. Don’t feel discouraged if you feel behind. The best time to start saving for retirement is yesterday, but the second best time is today.
By thinking about your retirement goals and doing a few calculations, you should now be able to answer the question, “How much money do I need to retire?” The best way to start saving for retirement is to look for the low-hanging fruit, such as an employer matching 401(k) program at work.
From there, take a look at your budget for ways to save more money. Finally, figure out how you can increase your income to save even more toward your retirement goals. If you need extra help creating your retirement plan, consider speaking with a Certified Financial Planner™.
