How much money will you need to retire?
It’s a question that has no single answer. Everyone has different financial needs that arise from their specific situation.
But there are methods and tools you can use to discover your personal retirement number. In this article we show three ways to estimate how much you need to save for a comfortable retirement.
Use an online retirement calculator. The beauty of retirement calculators is that they’re simple. Input some data about your savings, and you’ll get an estimate of how much you’ll have in retirement. They’ll let you know if you’re on target for your retirement goals.
Always take retirement calculators with a grain of salt. They’re each built on different algorithms and assumptions, so expect a range of results.
They also don’t know you personally, or your situation. You may have specific needs and plans that they can’t take into account.
Here are a few retirement calculators you can try…
The 4% Rule. This is the tried and true strategy for discovering your retirement number. It takes a little math, so grab your calculator!
First, let’s assume your income is $60,000 per year.
Next, let’s say that your annual retirement income must be 80% of your current annual income. So that’s $48,000.
Now, divide that by 4%…
$48,000 ÷ 0.04 = $1,200,000
Using the 4% Rule, you would need to have saved $1,200,000 to retire on 80% of your current income ($1,200,000 ÷ $48,000 = 25 years).
The Income Scale. This strategy, recommended by Fidelity, is more of a rule of thumb.¹
It aims for you to save 10x your annual income by age 67. It provides benchmarks along the way…
-1x by 30 -3x by 40 -6x by 50 -8x by 60
The only issue with this strategy is that 10x your income may not be enough for a comfortable retirement. For instance, a family earning $60,000 per year would only have $600,000 saved!
Each of these tools will help you estimate your retirement number. But the best way to discover your true number is to meet with a licensed and qualified financial professional. They can help you consider all the variables that may impact your retirement, and how to prepare.