How to Calculate Your Retirement Savings Needs

Common strategies for calculating how much you’ll need to retire

Unfortunately, there’s no one formula to calculate how much you’ll need to save for retirement. Experts typically recommend saving 10% to 15% of your yearly salary towards retirement, but your unique goals affect the ultimate retirement budget you’ll need. High-income earners who want to maintain their lifestyle after retiring will need to save much more than the average retiree. Low earners may be able to save less since Social Security will likely cover most of their current income.

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Ultimately, the amount you save before you retire affects the lifestyle you’ll be able to live as you age. While you’ll want to make sure you’ve saved enough for the essentials like housing, food, and healthcare, saving more gives you room to spend on other expenses like travel and entertainment. Your savings goals will also need to account for factors interest rates, debt, and inflation—while not an exact science, these common strategies help calculate your savings needs in a simple way.

Multiply your final income by 10 to 12

One way to calculate your retirement savings goal is by multiplying the income you’ll have at retirement age by 10 to 12 times. For example, if your annual income is $80,000 at 67 years old, you’ll need $800,000 to $1.2 million to retire comfortably. If you’re close to retirement age, this can be a simple way to estimate your retirement needs; however, if you’re starting to save at a younger age, it may be challenging to accurately predict your future income.

Multiply your current income

Luckily, if you’re starting to plan your retirement savings at a younger age, you can use your current salary to predict how much you’ll need to save. Follow retirement savings benchmarks to set yourself up for retirement savings success.

Many professionals recommend that by age 30 you should have the equivalent of one-half to one year’s salary saved towards your retirement. By age 40, you should have saved the equivalent of at least one and half year’s salary, with some experts recommending aiming for closer to three years’ salary. By saving this way, you’ll be able to eventually retire with 10 to 12 times your salary in your 60s.

Replace your pre-retirement income

Another common rule of thumb to calculate retirement savings is to plan to save enough to replace 70% to 90% of your pre-retirement salary for the duration of your retirement. Although similar to multiplying your final income by 10 to 12 times, this method allows you to calculate using more specific estimates of your goal lifestyle. Typically, it’s wise to plan for at least 25 years of retirement when using this method.

Hit $1 Million

Some people aim to save a total of $1 million for retirement rather than calculating a more exact number. Depending on your pre-retirement lifestyle, this may not be the right goal for you. If you’re far from retirement age, it’s a much safer bet to calculate based on your annual income—$1 million in 30 years will not have the same buying power it does today.

Factors that affect how much you should save

Every person has unique needs and goals to consider when saving for retirement. Although some factors remain out of your control, like how long you expect to live, you can predict many factors ahead of time.

Current income and age

Calculating how much you’ll need in retirement becomes easier as you get closer to retirement age. However, starting to plan at a young age makes saving more manageable in the long run. If you’re currently in your twenties or thirties, saving a small amount each month towards retirement goes a long way. Since most young people put their retirement savings into diversified investments, starting sooner rather than later allows you to save less overall—your money will be able to grow throughout the decades before you retire.

Saving 10% to 15% of your current annual income ensures you’ll have a solid savings account started. Once you get closer to retiring, you’ll want to save more aggressively based on how much you’ve already saved.

When you plan to retire

The age you plan to retire greatly affects how much you’ll need to save; planning to retire early requires more savings. People following the Financial Independence, Retire Early (FIRE) movement save aggressively to be able to retire at a young age, but most people don’t plan to retire until later in life. Although you can start receiving Social Security benefits at age 62, you aren’t eligible for full benefits until age 67. Life circumstances, like health issues or the loss of a job, may require you to retire before 67, but it’s generally a good age to plan for when calculating savings.

Current and desired lifestyle

How much you’ll need to save to retire varies widely based on your current lifestyle and your desired lifestyle after you retire. Saving based on your current income takes into account your current lifestyle, but you’ll want to consider other factors as well. If you expect your expenses to decrease after retirement, aim for the lower end of the savings range when calculating.

However, unless you plan to live frugally, most people should aim for the higher end of savings. Do you plan on traveling post-retirement? Even traveling shorter distances to visit family members or grandchildren can add to your annual expenses. Although healthcare costs generally increase for retirees, if you have certain health conditions you may have higher than average costs. For most people, housing costs will also increase throughout their retirement and should be accounted for when calculating savings goals.

Other sources of retirement income

If you plan on relying solely on your savings during retirement, you’ll need to save more than people with other streams of income. Most Americans can rely on Social Security for a portion of their post-retirement expenses and some people may have pensions. Owning rental properties or small businesses should also factor into your retirement savings plan. Although many retirees hold part-time jobs after retiring, you shouldn’t count on this income when calculating savings as it’s difficult to predict how long you’ll be able to work after the typical retirement age.

When it comes to calculating how much you’ll need to save for retirement, there’s no right or wrong answer. Whether you plan on retiring early at 60 or waiting until 67, you should consider your current savings and projected lifestyle to make sure you’re on the right track to a long, comfortable retirement.