How much money do I need to retire?   

5 mins readLast updated October 4, 2023by Kate Morgan

There is no single way to accumulate your retirement nest egg. But by weighing up the options for what your future holds and pinpointing the amount you’ll need to live happily ever after, you’ll be standing yourself in good stead.

Regardless of age, savvy financial planners will be trying to establish just how much to save for retirement.

But what works for you will be dependent on a combination of factors, and it’s important to establish these as part of your planning.

Whatever retirement you’ve got in mind, make sure you’ll be able to afford it.

What is the retirement age in the US?

Currently, the full retirement age is 66 if you were born from 1943 to 1954.

This increases gradually for those born between 1955 to 1960, and for anyone born in 1960 or later, you’ll only receive full retirement benefits aged 67. In other words, by 2023 the retirement age will be 67.  

If you retire at 62, you’ll be eligible to receive a reduced social security payment, while those 65 and over will receive some free Medicare benefits if they paid contributory taxes for at least 10 years.  

Of course, not everyone retires at the same age.

Around 3 million workers took early retirement as a direct result of the COVID-19 pandemic.

Health problems, caregiving duties or layoffs mean that taking retirement isn’t always a choice, but rather a necessity.

What’s often true though, is that the longer you’ve worked, the easier it is to retire. 

Doing the math

There’s no easy equation that demonstrates how much you should save for your retirement.

Thanks to the various external factors that can have implications on your income, experts are tentative to offer a definitive number.

Although many financial advisors will recommend saving at least 15 per cent of your pre-tax salary for retirement, this takes a number of factors for granted.

To retire comfortably at 62 on this basis, you would need to have started saving 15 per cent from the age of 25, or at age 35 if your aim was retiring at 65.  

Of course, not everyone is able to start saving for retirement in their twenties or thirties.

But if you start later, or save less, then you may have to work longer, or at least cut down on expenses and contribute more to your retirement fund.

Fidelity has offered some simple benchmarks to go by, based on your annual earnings, for how much you should’ve saved for retirement at various ages.

  • Age 30: 1x your annual salary saved

  • Age 40: 2x your annual salary saved

  • Age 45: 4x your annual salary saved

  • Age 50: 6x your annual salary saved

  • Age 55: 7x your annual salary saved

  • Age 60: 8x your annual salary saved

  • Age 67: 10x your annual salary saved

Alternatively, a more practical approach from Investopedia suggests that you should save 25 per cent of your gross salary every year, starting in your twenties.

This figure would include 401(k) holdings along with matching employer contributions, and sticking to it would consequently see you accumulate your full annual salary by the age of 30.

If you continued at the same average savings rate, you would yield the following:

  • Age 35: 2x your annual salary saved

  • Age 40: 3x your annual salary saved

  • Age 45: 4x your annual salary saved

  • Age 50: 5x your annual salary saved

  • Age 55: 6x your annual salary saved

  • Age 60: 7x your annual salary saved

  • Age 65: 8x your annual salary saved 

Such guidelines do not take into account the money that may be needed to support you through real-life events, like medical care or job losses, but can offer an insight into the amount that would help to support you in your retirement.  

 It’s also worth noting that money withdrawn from a traditional IRA or 401(k) during retirement will be considered taxable income, but from a Roth IRA or Roth 401(k) it is usually not taxable.

This is yet another example of how the calculations can be altered due to personal circumstances.  

What expenses will you be facing?

Before deciding what sort of retirement lifestyle you’d like to be living, let’s not forget the necessary expenses that you’ll still be faced with even when you stop working.

As you get older, your spending patterns may change; though spending less on transport, you may instead be spending more on your health.

The below chart, based on data from the Employee Benefit Research Institute, offers an idea of how retirees’ spending patterns change over time.

What is your planned retirement lifestyle?

Will you be tightening the belt when you retire, or going out and seeing the world?

If you’re open to living frugally — perhaps downsizing and reducing your general outgoings — then earlier retirement could be an option for you.

You might plan to eat more meals at home, shop at cheaper stores and generally cut down on more frivolous expenses. 

However, if instead you would like to maintain your lifestyle, or perhaps even spend money on luxuries like traveling or developing your property, then you’ll naturally need to have saved more money before comfortably retiring.

Planning how you expect to spend your money is just as important as establishing how much to save for retirement.

How do you want to retire?

There is more than one way to retire.

In your sixties, the golden age of retirement is on the horizon. But perhaps you won’t want to go cold turkey and finish work altogether at the retirement age you have in mind.

You may instead plan to go part-time, reducing your hours and income but still adding some money to your nest egg.

Or, alternatively, you may want to quit your job in favor of volunteer work.

This may not be a money-earner, but your days will still be filled with some form of labor — and when you’re working, you’re not spending. 

Ultimately, saving for retirement is about how you’re planning to live once you get there. But it’s never too early to start planning for the future. 

Content writer

Kate Morgan

Kate has written for leading publications and blue chip companies over the last 20 years.