Retirement saving: How much money is enough?

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We all know we need to save for retirement, but we might not know exactly how much to set aside. It’s easier to meet your retirement-savings goal if you’re aiming with intention for something concrete, rather than just passively diverting a percentage of your paycheck to your 401(k) and other retirement accounts.

There’s no universal figure when it comes to how much you’ll need to save for retirement, but there are fairly simple ways you can pinpoint a number for your unique situation. 

How to calculate your retirement needs

When determining how much you’ll likely need to set aside from retirement, the 75 percent replacement rate is “a good starting point,” Kiplinger suggests. With this rule, if you made $100,000 shortly before you retired, you’d plan to need 75 percent of that amount each year when you did retire, or roughly $75,000.

The 75 percent rule “is based on reducing your spending at retirement by 5 percent and saving 8 percent of your gross household income during your working years,” according to Kiplinger. This is roughly the average amount people save in their retirement accounts each year. Why can you assume your spending will be lower after you retire? Not only is this a typical pattern, but you’ll also no longer be diverting a portion of your income towards retirement savings, and your taxes will most likely be lower than before, Kiplinger notes.

The 75 percent rule won’t be quite right for everyone, particularly if you’re saving more aggressively for retirement than that 8 percent rate. In that scenario, adjust your calculations so that “every extra percentage point of savings beyond 8 percent, or spending reduction beyond 5 percent, reduces your income replacement rate by about 1 percentage point,” Kiplinger suggests.

Other factors that might affect your replacement rate include how your retirement savings are taxed (Kiplinger notes that “if you have a large proportion of your retirement savings in Roth accounts, your income replacement rate should be lower”) as well as your marital status and household income, as those both affect your taxes and Social Security benefits.

Still, that 75 percent figure can be a useful starting point for your calculations.

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How much do people usually spend in retirement?

While your retirement goals should be tailored to your individual situation, it can be helpful to get a sense of how much other people are spending during their golden years. Households led by someone 65 or older spent an average of $45,270 in 2020, according to data from the Bureau of Labor Statistics reported by U.S. News & World Report. There were plenty of households that spent far less or far more than that average — 2.1 percent spent less than $10,000, while 6.7 percent spent $100,000 or more. 

Keep in mind that you need to save beyond just what you’re spending , Chuck Czajka, founder of financial firm Macro Money Concepts, pointed out to U.S. News & World Report. “For every $50,000 of income you need, you need a million bucks,” Czajka said.

What are the typical income sources for retirees?

As you assess your plan to finance retirement, it’s helpful to know where your money will be coming from. These are the top sources of income for people age 65 and up, according to a 2022 Census Bureau report:

  • Social Security income
  • Pension and retirement account income
  • Earnings
  • Property income
  • Supplemental Security income
  • Other income (workers’ compensation, veterans benefits, other cash income sources)

However, beware relying too heavily on any one income source in retirement, Kiplinger cautions. There should be “three main components to a financial plan for retirement: the foundation, the walls, and the roof,” the financial website adds. The foundation is “money that needs to be secure and produce predictable income that will last for your lifetime,” such as income from “Social Security, pensions and rental properties.” Meanwhile, the walls are “stable, relatively safe investments with minimal risk that add security for the retiree,” like certificates of deposit, bonds, and fixed annuities. 

The roof is “riskier types of investments, such as stocks, mutual funds, exchange-traded funds, real estate investment trusts (REITs), precious metals like gold and silver and variable annuities.” These can help investors “realize financial growth” in order to keep pace with inflation, Kiplinger says.

Tips for reaching your goals

Get familiar with your current spending habits. One issue for many people as they start planning for retirement is not knowing how much they’re currently spending each year, Kiplinger says, adding that “not knowing that number or planning for it can be the difference between someone having a great retirement and someone running out of money.” Pull out your bank statements from the last 12 months and add up the withdrawal amounts.

Have a “decumulation strategy.” Look beyond just stashing away funds for retirement and  think about your plan for “most effectively and responsibly drawing down that nest egg at the levels that are just right for you,” Kiplinger says. This is known as a “decumulation” strategy, and a financial professional can help you out with it.

Maximize Social Security income. Social Security benefits are “a foundation for your retirement income planning,” which is why it’s so important to make the most of them, Kiplinger says. One strategy is to delay taking Social Security, which can increase monthly checks later. Social Security rewards you for pushing back benefits with delayed retirement credits each month up until age 70, Kiplinger explains, which means those delays “add 8 percent per year for every year you wait.”

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. This article is in part based on information first published on The Week’s sister site, Kiplinger.com

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We all know we need to save for retirement, but we might not know exactly how much to set aside. It’s easier to meet your retirement-savings goal if you’re aiming with intention for something concrete, rather than just passively diverting a percentage of your paycheck to your 401(k) and other retirement accounts. There’s no universal figure when it comes…

We all know we need to save for retirement, but we might not know exactly how much to set aside. It’s easier to meet your retirement-savings goal if you’re aiming with intention for something concrete, rather than just passively diverting a percentage of your paycheck to your 401(k) and other retirement accounts. There’s no universal figure when it comes…