How Much Do I Need to Retire?

Many Americans worry about retirement and outliving their money. You might think you've saved enough to retire, but what does that really mean? You might say $1 million will do it. Or you might figure that saving enough to replace 70% to 80% of your current income will be enough.

Unless you've carefully mapped out your desired lifestyle when retirement planning, however, you're probably just guessing at what you'll need — and for how long you'll need it.

If you're asking, "How much do I need to retire?" here's a start on determining your potential retirement needs and helping establish a more secure future.

Setting Goals for Retirement

Choosing when to wind down your career is likely one of your biggest financial decisions ever. As eager as you may be to embark on that next stage of life, make sure you're prepared.

Having clear goals for your retirement is vital to your long-term financial security and happiness. When you have a sound plan that lays out how much you can withdraw from your investments and other assets — no matter the market conditions — you enjoy the freedom to confidently live your best life.

When considering when (and how much you'll need) to retire, it's helpful to explore unique factors you may encounter and basic rules that can help gauge your progress.

How much should I be saving for retirement?

You may hear certain numbers thrown around, like $1 million. But the fact is, no single number applies to every individual or couple. Figuring out how much you need in savings depends on many factors, including your health, your retirement age, whether you have home equity or other assets you can tap, and your future lifestyle.

To truly understand how much you may need, develop a more personalized approach. Our Retirement Cost of Living Calculator  can help. This free online tool helps determine what your costs may be and whether you have enough assets to last, depending on your existing savings and projected expenses after leaving the workforce.

For a more detailed analysis, you may want to contact a financial professional who can look at your current financial picture and guide you in shaping your retirement goals.

What is the rule of thumb for retirement savings?

There are a few commonly cited maxims for determining how much to save. One popular rule is designed to help you determine your post-retirement budget. It suggests planning to spend 70% to 80% of your pre-retirement budget once you leave the full-time workforce.

As with any rule of thumb, this metric may not apply to everyone. Estimating your retirement expenses generally requires a careful look at your future lifestyle. Figure out how much you plan to spend on housing, activities, travel, transportation and so on. By knowing how much of your pre-retirement income you have to replace, our Retirement Savings Calculator  can help you determine whether you're saving enough of your income.

Another principle for calculating retirement savings involves how much of your retirement assets you can safely withdraw without running out of money in your lifetime. The 4% rule recommends withdrawing a modest percentage of your money in your first year of retirement and then increasing that amount in subsequent years based on inflation. This pace of distributions could potentially sustain a 30-year retirement in the vast majority of market conditions.

However, some experts question whether a 4% withdrawal rate is sustainable in a high-inflation environment. And if you plan to retire early, keep in mind that you may need your money to last even longer than 30 years. Therefore, reducing your withdrawal amounts may be necessary to maintain your financial security.

What’s the average retirement savings by age?

According to a recent analysis, the average and median account balance for retirement accounts was the following, respectively:³

• Under 25: $6,264 and $1,786
• 25–34: $37,211 and $14,068
• 35–44: $97,020 and $36,117
• 45–54: $179,200 and $61,530
• 55–64: $256,244 and $89,716
• 65-plus: $279,997 and $87,725

While average balances are higher, those numbers are skewed by a relatively small number of more aggressive savers. Therefore, median balances more accurately reflect the savings amount of a typical adult.

The data helps confirm that, if you're behind your target retirement amount, you're not alone. If you find yourself in that situation, consider strategies to increase your savings rate and possibly adjust your retirement age or future lifestyle.

Retiring at 40

When you love what you do, it can be hard to think of doing anything else. For others, the sooner retirement comes, the better.

Is retiring as early as age 40 realistic? It could be if you managed to earn a strong salary at a relatively young age and are saving a large chunk of your paycheck. That doesn't mean early retirement is right for most, though. Because you have fewer working years to build assets — and potentially many more years from which you'll draw them down — such a move generally requires a special level of care and planning.

You don't need to be fabulously wealthy to downshift at a younger age. If you're willing to dramatically pare back your present spending and would be happy living a relatively simple lifestyle later in life, you might be able to make it work. Consider working with a financial professional to get an accurate view of your individual situation and evaluate your ability to retire this early.

Retiring at 45

You're not alone if you're thinking about hitting retirement while still in your 40s. In fact, the FIRE (Financial Independence, Retire Early) movement has given birth to many books and podcasts in recent years.

Is retiring at 45 wise, though? To figure that out, calculate an investment withdrawal rate that's sustainable for many decades. And doing that depends on a number of personal factors, such as how much money you may have coming in from other sources and whether you may work part-time after retirement to supplement your income.

Keep in mind that you won't qualify for Medicare until you reach 65. That means you should make sure you can afford a health insurance plan on your own in the meantime.

Retiring at 50

Leaving your career at age 50 and well over a decade before the traditional retirement age means you may have more time to spend with family, focus on your favorite pastimes or start a new side venture. But it also means more years you could be drawing from your investment accounts. Making sure you have enough assets to last is crucial.

Before deciding when to retire, think about what life may look like when you leave your job. The clearer you are about how and where you plan to spend your retirement, the easier it could be to arrive at a detailed estimate of your post-work expenses. Be sure to include housing, insurance, travel, utilities and food in your projection.

Also, think about one of the biggest expenses for older adults: health care. Now's a good time to look at long-term care policies to cover future needs or to set aside money so you can cover those costs out of pocket.

Retiring at 55

From an investment income standpoint, you have more flexibility when you retire at 55. An oft-overlooked provision in the tax code allows you to avoid the early 401(k) withdrawal penalty if you leave your job in the year you turn 55 or after. However, make sure you have enough money to last for what's hopefully a long, rewarding retirement.

In your mid-50s, you're still more than a decade away from being able to collect your full Social Security benefit. Therefore, you may want to identify a sustainable withdrawal rate from your 401(k) or individual retirement account and make sure you can live on that amount comfortably — especially if you still have a mortgage or other major expenses.

So what's a realistic amount to withdraw once you're no longer working full time? The common guidance suggests you're relatively safe taking out 4% of your assets in your first year of retirement and adjusting for inflation in future years.¹ However, that axiom assumes a 30-year retirement, not one that could last 40 years or more. You may want to consult with a financial professional to develop a retirement income strategy based on your specific situation.

Retiring at 60

You've tightened your budget and been diligent about maximizing your savings. Ideally you can retire a few years ahead of the curve without worrying about money issues, right?

That's an important question that depends on unique factors, including your expected lifestyle in future years. Before retiring at 60, tally up all your projected costs so you have a good idea of what your post-retirement budget may look like.

In your retirement planning, you may also want to account for health care expenses, which can be more substantial than you might think.

Retiring at 62

Because you can start collecting Social Security benefits at 62, this milestone may seem like the perfect time to transition into retirement. And for many adults, this opportunity can make sense.

However, when you receive Social Security before your full retirement age (that's 67 for those born in 1960 or later), you're getting a monthly amount that's reduced by as much as 30% over the remainder of your life. That's why it's important to think about your health and life expectancy — as well as the size of your investments and other assets — before choosing when to start collecting your benefit.

Retiring at 65

One of the benefits of waiting until 65 to retire is the ability to enroll in Medicare. There's no monthly fee for hospital coverage, and premiums for physician coverage and prescription drug benefits are often less expensive than plans purchased on the individual market.

However, if you retire at 65, you still aren't old enough to receive your full Social Security benefit. So you may want to make sure you can hold off on applying for Social Security Administration payments for a couple of years or are willing to accept a slightly lower monthly benefit.

How Much Does a Couple Need to Retire?

If you're married and hope to retire soon, planning around your combined financial needs becomes imperative. Before embarking on your next stage of life together, analyze your household expenses and income expectations. While couples spend more than single adults, dual-income households also may have more investment accounts they can draw from in retirement.

Bear in mind that even if your spouse hasn't worked full time in recent years, they may be eligible for a Social Security benefit based on earnings earlier in their career. They may also be able to claim a spousal benefit worth up to half of your monthly amount if it's more than their own Social Security benefit.

Finding the Help You Need to Reach Your Goals

Retirement is your opportunity to pursue the activities you've always dreamed about, whether it's spending more time with grandchildren, traveling or even starting a new small business. The last thing you want to worry about in those years is whether you have enough money to maintain your chosen lifestyle.

Figuring out how much you may need isn't a one-size-fits-all question, however. Proper retirement planning reflects a number of factors, including your timing, marital status, projected expenses and outside assets. Consider contacting a financial professional if you could benefit from personalized insights and customized guidance.

Sources

1. O'Connell B. What is the 4% rule? U.S. News & World Report. https://money.usnews.com/money/retirement/401ks/articles/what-is-the-4-rule. Published August 9, 2022. Accessed February 10, 2023.
2. 2021 retirement healthcare costs data report. HealthView Services. https://hvsfinancial.com/wp-content/uploads/2020/12/2021-Retirement-HC-Costs-Report-op-final.pdf. Accessed February 10, 2023.
3. How America saves 2022. Vanguard. https://institutional.vanguard.com/content/dam/inst/vanguard-has/insights-pdfs/22_TL_HAS_FullReport_2022.pdf. Accessed February 13, 2023.