Most experts recommend saving 10x your annual salary for retirement – assuming you retire at full retirement age (or later).
When you think about retirement, a thought that likely comes along with it is: How much money do I need to have saved? The answer is different for everyone, especially depending on your current income and goals for your retirement lifestyle, but it's important to plan ahead and know how much you should have to help you stay on track and reach those goals.
Read to learn more about how much you should have saved for retirement, how to calculate your specific savings goals, and retirement savings goals by age, as well as tips for saving for retirement.
How much do I need to retire?
Many experts suggest your retirement income should be 70-80% of your final, pre-retirement annual income, though others recommend saving at least 10-12x (times) your preretirement income. For example, if you make $100,000 per year before you retire, you should have at least $80,000 per year to live a comfortable and maintained lifestyle after retiring.
Factors that impact how much you should have saved include:
- The age you plan to retire. Delaying retirement gives your savings a longer time to grow, and your Social Security benefit will increase each year through age 70. To learn more about how much your delayed benefit would be, use the Delayed Retirement Credits calculator on Social Security's website. On the other hand, retiring early means you wouldn't receive your full Social Security benefits until you reach retirement age, so you'd have to plan for that.
- Your retirement lifestyle. Consider how you want to live once you're retired. For example, do you want to move? Downsize? Travel? Provide financial support for children or grandchildren? Someone who plans to downsize and live a relatively quiet retirement life may not need as much saved as someone who wants to travel the world.
- Your current health. If you're a generally healthy person and/or don't have family history of chronic diseases, you'll likely spend less on medical bills or long-term care than someone who has already been diagnosed with a chronic condition or has a poor medical or family history. Eating a healthy diet, exercising, quitting smoking (if you smoke), and getting regular health screenings can help keep you healthier longer, but having an idea of how much you'll spend on health care is an important factor.
- Expenses you can eliminate. For example, since you won't be driving to work you may not have to pay for as much gas. Perhaps you move into a smaller home or apartment so your mortgage or rent is lower. You may spend more time at home cooking, so you won't spend as much eating out at restaurants.
- Other resources. Other than your retirement savings, do you have any other resources that can help cover unplanned expenses? For example, long-term care insurance, Social Security, pensions, part-time jobs, or other investments? Having access to financial or other resources other than your retirement savings can help provide extra cushion.
Once you've determined the lifestyle you want to have post-retirement and how much income you'll need to generate from other savings, you'll need to calculate how large your retirement savings needs to be. You can use a retirement calculator, or you can use the 4% rule.
What is the 4% rule?
The 4% rule says that, during your first year of retirement, you can withdraw 4% of your retirement savings. So, if you have $1 million saved, you'd take out $40,000 during your first year. Each year, you'd adjust this amount for inflation and cost-of-living. Using this rule, you can estimate how much you'd need to last for a minimum of 30 years.
To calculate your retirement savings target using this rule, you should multiply your monthly income required by 25. For example, if you need $5,000 per month ($60,000 per year), you should try to save $1.5 million for retirement.
This is a good starting point to estimating how much you need saved, but you may need more (or less) depending on your personal situation and future lifestyle.
How much are my Social Security benefits?
Those who are eligible for Social Security benefits when they retire receive an average of about 40% of their pre-retirement income.
To be eligible for Social Security benefits, you need to have earned "credits" toward them, and the number of credits you need depends on the year you were born: If you were born in 1929 or later, you need 40 credits. If you stop working early, the credits will remain on your record, and if you return to work, more credits can be added. However, you will not get any benefits until you have 40 credits.
How much you receive from Social Security also depends on what age you retire. If you reach full retirement age, you'll receive your full Social Security benefit amount.
- If you were born from 1943 to 1954, full retirement age is 66
- If you were born from 1955 to 1950, full retirement age increases until it reaches 67
- If you were born 1960 or later, full retirement benefits begin at age 67
However, you can start receiving benefits as early as age 62 and up to age 70. The earlier you apply for benefits the less you'll receive until you reach full retirement age, and if you delay retirement, you could earn more. Learn more using Social Security's Full Retirement Age and Benefits chart. You can also use their Retirement Benefits Estimator.
How much do I need to retire early?
If you retire early, your Social Security benefit is reduced 5/9 of 1% for each month before normal retirement age, up to 36 months. If the number of months is greater than 36, the benefit is further reduced by 5/12 of 1% per month.
For example, if you retire at age 62 when your normal retirement age is 67, your benefit will be reduced 30% and you will only receive 70% of your benefit. At 65, you'd receive 86.7% of the benefit. You wouldn't receive 100% of the benefit until you reach full retirement age.
Because of this, you'd likely need more than the estimated 10x your income since you'll be retired for longer. For example, some experts recommend saving up to 16x your salary by the time you leave your job. Using a retirement calculator can help you estimate how much you'd need at different ages, including early retirement.
Retirement savings goals by age
It's never too late to start saving for retirement, but the earlier you start saving, the better off you'll be once you're ready to exit the workforce. You may even be able to retire earlier if you start saving earlier.
Experts recommend the following benchmarks to help you track toward your savings progress:
Multiple of Annual Salary Saved
Tips for Saving