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How Much Money Do You Need To Retire? 5 Strategies To Save

Written by Than Merrill

How much money do you need to retire?” This question is an important part of retirement planning, and the answer varies greatly from person to person. The magic number depends largely on what kind of income and lifestyle you would want in retirement, and it also includes key factors such as health and family commitments. Most Americans aren’t on track to saving what they’d need by the time they retire. That’s why it’s important to figure out how much you need to retire so that you can start saving and investing straight away.

How Much Do You Need To Retire?

According to, the average person will need $1.73 million in their retirement. This amount can come from your retirement savings, investments, social security, and passive income, to name a few options. Most experts say that you should plan on earning 70 to 90 percent of your current income. For example, let us say you will earn $70,000 per year before retiring. In that case, plan on earning between $49,000 to $63,000 per year from retirement savings and Social Security. This retirement earning target will depend on things like your health status and lifestyle choices. For instance, if you want to live out your retirement years lavishly, you should plan to earn even more.

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How much money do I need to retire

Saving vs. Investing

If you see yourself as a saver and not an investor, it’s time to change your mindset. Putting away any money at all into a savings account is a commendable feat, but you will earn little to no returns. To grow your wealth, consider putting your additional contributions into an investment account, such as an individual retirement account (IRA), brokerage account, or health savings account.

If you have a 401(k) account through your employer, you have the option of maxing out your allowable contributions. You can also make additional contributions into a separate IRA account to diversify your investments. If you’re auto-enrolled in your 401(k) plan, sit down with a professional regularly to review your contribution level and investment choices. Many Americans never adjust their 401(k), which is a lost opportunity to boost your investments throughout your career.

How Much Does a Couple Need to Retire?

If you’re in a partnership, then you can create retirement goals and savings plans as a couple. You may even benefit from certain things such as shared costs.

The amount you need to save as a couple depends on your current combined income and the lifestyle you’d like to lead in your retirement. Some experts say that your retirement income should be about 80 percent of your pre-retirement combined annual earnings. Plan to save 10 times your current combined annual income by age 67.

How To Calculate Retirement Savings

A great way to remember how you need to save up for retirement is the 4% rule. Take your desired annual retirement income and then divide it by 4 percent. For example, let us say that you want to travel in retirement, so you want a retirement income of $100,000 per year. Using the 4% rule, you’ll find that you need to build up a nest egg somewhere in the ballpark of $2.5 million. ($100,000 / 0.04 = $2.5 M)

The 15% Rule

An amount this large can feel overwhelming, so it’s helpful to break it down to smaller savings targets by age. It’s recommended that you save 15% of your gross salary, starting in your 20s. Asking yourself, “How much do I need to retire?” at each milestone in your life will help your planning immensely. Here is how much of your salary you should have accumulated in savings by age:

  • 30s: Amount equal to your annual salary

  • 40s: Two times

  • 50s: Four times

  • 60s: Six times

  • 67: Eight times

Retirement Savings By Age

If the 15 percent rule doesn’t yield enough of a nest egg for you, or you are starting to save for retirement later than planned, you may want to use a more aggressive tactic. For saving more aggressively, remember the number 25. You should aim to save 25 percent of your gross salary each year, as early on as possible. You should expect to save the following amounts of your annual salary by each age:

  • 30: Amount equal to your annual salary

  • 35: Two times

  • 40: Three times

  • 45: Four times

  • 50: Five times

  • 55: Six times

  • 60: Seven times

  • 65: Eight times

More Ways To Calculate Retirement Savings

We provided a few different methods of calculating your target retirement savings above, but there are several other ways to go about it.

For example, you might find using an online retirement savings calculator tool helpful. These calculators allow you to easily simulate how different savings and withdrawal rates will impact your nest egg. By playing with different numbers, you can figure out how much to save today to live comfortably tomorrow.

There are many different online calculators to choose from; our favorites are those provided by NerdWallet and Vanguard.

How much to save for retirement

How To Save For Retirement In 3 Steps

So far, we’ve discussed what savings targets you should be hitting by certain stages of your life. Now, you’ll want to know exactly how to save up for retirement. To help you get started, we’ve broken it up into three easy steps:

  1. Set a Retirement Goal

  2. Invest In A 401(k) or Roth IRA

  3. Invest Beyond 15%

1. Set A Retirement Goal

If you did your homework by calculating how much money you’ll need to have saved by retirement, then you’ve already completed step one. No matter how hefty the amount may seem, the first step is to come up with a concrete number so that you can work backward and come up with a plan on how you’ll get there.

Don’t forget to consider other sources of income that might ease some of your savings burdens, such as inheritances or passive income streams. However, you should only count on income sources that you can depend on. It’s better to be safe than sorry and wind up with extra income than you had planned on.

2. Invest In A 401(k) Or Roth IRA

Now that you’ve created a retirement goal, it’s time to put your ideas into action! Once you’ve set up your 401(k) account, consider opening up an individual retirement account (IRA) or Roth IRA. Both types of accounts are popular and are great options for boosting your retirement savings in a tax-deferred environment. Here are some highlights you should know about each:

Traditional IRA

  • You must earn an income in order to qualify for an IRA.

  • In 2020, the contribution limit is $6,000 per year.

  • The funds can be withdrawn without penalty after the age of 59 ½.

  • Any money grown in the account won’t be taxed until you withdraw it. Any contributions you make can be deducted from your income taxes.

  • You will be taxed and penalized if you make any withdrawals before your retirement age.

  • You will be required to take minimum distributions once you reach the age of 72.

Roth IRA

  • You must earn an income in order to qualify for a Roth IRA.

  • In 2020, the contribution limit is $6,000 per year.

  • The funds can be withdrawn at any time, but you must wait until 59 ½ if you want to make any tax-free withdrawals.

  • You can invest money in a Roth IRA after taxes so you can get your earnings tax-free during retirement.

  • Your actual contributions can be withdrawn at any time tax-free, but any earnings withdrawn before retirement can be taxed and penalized.

  • Unlike the traditional IRA, Roth IRAs do not have required minimum distributions.

3. Invest Beyond 15%

Aside from investing 15 percent of your gross salary for retirement, you can bolster your efforts using a few different strategies:

  • Max out your 401(k): One of the easiest things you can do to boost your retirement savings is to max out your employer-sponsored 401(k). Most experts recommend delegating at least 10 percent of your gross income to your 401(k). If your employer has a contribution minimum before they will provide any matching, make sure to hit at least that minimum.

  • Open an investment account: Because you can’t make early withdrawals from a 401(k) or IRA, or at least without major penalties, open up a taxable investment account. These allow you to put in and take out money as you please and can be a great way to grow additional wealth over time. Just note that you’ll owe taxes on what your accounts earn. Investment accounts are also a great backup plan to put in place so that you won’t have to touch your retirement accounts in a pinch.

  • Invest in real estate: Passive income is a great way to supplement your retirement savings plan and also a way to relieve some of your savings requirements. By investing in rental properties, you are building wealth in multiple ways. First, you are purchasing a tangible asset that will gain market value over time. Real estate is one of the few investments that have undeniably increased in value throughout history. Also, by renting out these investment properties, you’ll be securing streams of passive income, which you’ll continue earning in retirement. That is unless you decide to sell. Read more about how to invest in rental properties here.

4. Consider Your Social Security Benefits

The good news is that most people don’t have to rely entirely on their personal retirement savings. The U.S. currently has a Social Security Benefits program, which is a sizable source of income for most retirees.

Social Security will replace some of your retirement income, but the proportion depends on your pre-retirement income. The percentage is higher for those with relatively lower incomes, while the percentage is lower for those with relatively higher incomes.

You can calculate how much Social Security income you’ll receive in retirement by visiting the Social Security homepage. You’ll first need to register for a my Social Security account and log in before you can use any of the retirement calculators provided by the Social Security Administration.

5. Consider Pensions As A New Source Of Income

Another oft-forgotten source of retirement income is pensions from current or former jobs. Although employers that offer pension programs are increasingly rare, they are still out there. For instance, if you are a public educator or government worker, then you are more likely to be a part of an employer-based pension program.

These pensions typically provide a retirement income once you reach retirement age. You must have worked a certain number of years to become “vested,” or eligible to receive this pension. Your pension income is often a function of your highest-paid salary and the number of years you have been employed with this particular employer.

5 Tips On How To Save For Retirement

Last but not least, it’s important to recognize that saving up for retirement is a long and hard road. All of these strategies work great until life throws you curveballs, which should be expected. “How much do I need to retire?” should always be followed up with “How can I protect my retirement fund?” That’s why you should arm yourself with some expert tips to make sure your retirement saving strategy can weather any storm:

  1. Start Saving Early

    You might have noticed that all the retirement saving tactics mentioned thus far indicate how much you should have saved by age 30. This means that you need to start saving as early as possible, or you’ll have a lot of catching up to do. Simple math shows that an individual who started saving in their 20s will have a much easier time meeting their savings target than someone who started 10 years later. If you find that you got started late, don’t worry – you’ll have to be diligent and take a more aggressive savings strategy – but you’ll be able to catch up if you put your mind to it.

  2. Automate Your Savings

    Always pay yourself first. Putting any money away into savings gets tough when you start paying your bills and using your disposable income each month. That’s why you should create an automated system to deposit savings right when you get paid. This way, you won’t even miss the money, and your nest egg will grow without having to think about it.

  3. Cut Your Costs Of Living

    Certain costs eat up large chunks of your income. Some examples include the cost of housing or transportation. If you haven’t already, perform an audit of your current cost of living, and see if you can reduce. Do you really need to lease the latest model of your car every few years? Do you live in a home where you could rent out one of the rooms for some rental income? Could you move somewhere cheaper? These are some savvy moves that can help drastically reduce your overhead and create more opportunities to save.

  4. Reduce Non-Essential Spending

    Reining in your spending is difficult, but it can be done. It takes time to create and stick to good habits, but you’ll be thanking your younger self when you’re comfortably retired. Examine if your daily and weekly spending habits are essential, or if you can cut your budget in any way. For example, maybe you can treat yourself to lunch or coffee once per week instead of daily. Or, perhaps you can stretch out that haircut to once every three months instead of two months. Ask your friends and family if you can split the cost of subscription services. If you get creative, there are plenty of ways to cut down on your spending.

  5. Pay Off Your Debts

    Paying back credit cards and loans will eat up significant chunks of your money. Not only are you paying back the borrowed amount, but you’re also paying back extra in interest. Interest charges can build up quickly, so you’re incentivized to pay off your debt as soon as possible. By doing so, less of your income will go toward debt payoff, and more of your income can be focused on building your wealth.


Saving up for retirement is a daunting task, so much so that many Americans do their best to avoid thinking about it. However, you’ll truly regret it if you don’t start taking care of your future self today. The first and most important step is to ask, “How much money do you need to retire?” Once you’ve come up with the magic number, work backward to roughly determine how much you should have saved up by each decade. That way, you can create a solid game plan to ensure you can hit each of these targets. Consider creative options, like opening up additional investment accounts and investing in real estate.

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