How Much Do You Need to Save for Retirement?

We hope the answer will calm you.

enjoying retirement

It’s one of the questions we hear most often, and rightfully so: Am I saving enough for retirement?

The answer, of course, is: it depends. Lots of factors come into play, including how much income you’ll need, whether you’re entitled to Social Security and/or a pension, your health and life expectancy, and your attitude about inheritances for a spouse/partner, children or others.

Typically, after analyzing the situation, we discover that people need to amass savings of 15 to 25 times their current annual income. For this discussion, let’s use the midpoint of 20x. On that basis, it would seem that someone earning $100,000 a year would need to accumulate $2 million.

That’s a shocking amount.

Only it isn’t — and here’s why. If you’re married and will receive combined retirement benefits from Social Security of $40,000, you won’t need to amass enough savings to generate that entire $100,000. Instead, you’ll need only $60,000. And 20 times that is just $1.2 million — a goal that's much easier to achieve.

Factoring in Social Security and Pensions

If you’re due a pension in addition to Social Security, that target amount is even less. And it's less still if you plan on earning part-time income after you retire; even $10,000 a year can make a huge difference. As can deciding that you can afford to live on less than what you’re currently spending. Finally, deciding that you don’t need to leave millions of dollars to heirs further reduces the amount you need to accrue by retirement.

For all these reasons, the situation might not be nearly as dire as you think.

So, that range of 15x to 25x is merely that — a range. To get your specific answer to that important question — Am I saving enough for retirement? — there is no substitute for consulting a professional financial planner. When we review your entire situation, we’ll be able to tell you if you need to generate savings of 25x of your current income — or only 3x.

At Edelman Financial Engines, we routinely perform this important calculation for our clients. And we can do it for your family and friends too.

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