Key takeaways
- Your retirement number comes from the yearly spending your savings must cover (spending minus Social Security and pensions), multiplied by roughly 25.
- Inflation is the silent multiplier. $60,000 of spending today is about $145,636 a year in 30 years at 3% inflation.
- In our example, a 35-year-old saving $12,000 a year is on track to run out at 87. Retiring two years later or saving $3,000 more a year closes the gap.
- Re-run your estimate every year or two. Small course corrections early are far cheaper than big ones late.
There’s no universal retirement number. There’s your number, and you can estimate it in four steps. After that, the useful question isn’t “Do I have enough?” but “Which change closes my gap most cheaply?”
Step 1: Estimate what you’ll spend
Start from what you spend now, not what you earn. Then adjust:
- Costs that drop: retirement saving itself, Social Security and Medicare payroll taxes, commuting, and possibly a mortgage that’s paid off.
- Costs that rise: health care (Medicare premiums, supplemental coverage, and out-of-pocket costs), travel and hobbies early in retirement, and eventually long-term care.
If you don’t have a detailed budget, 70% to 80% of your pre-retirement income is a common starting point. Our example household plans to spend $60,000 a year in today’s dollars.
Step 2: Subtract guaranteed income
Social Security, pensions, and annuities cover part of the bill. Get your personal Social Security estimate from your my Social Security account, or use our Social Security calculator to see how your claiming age changes it.
Our example expects $20,000 a year (in today’s dollars) from Social Security starting at 67. That leaves $40,000 a year for savings to cover, plus the full $60,000 in the two years between retiring at 65 and claiming.
Step 3: Turn the gap into a savings target
The quick version: multiply the yearly gap by 25. That’s the 4% rule in reverse, and it gives about $1,000,000 in today’s dollars.
A more careful version inflates spending to the year you retire, then projects withdrawals, investment returns, and Social Security year by year to your planning age. For our example (retire at 65, plan to age 90, 5% returns in retirement, 3% inflation), the savings needed at retirement come to about $2,001,739 in future dollars.
That looks enormous next to $1,000,000, and it’s mostly inflation: 30 years of 3% inflation multiplies prices by about 2.4.
Step 4: Compare the target with where you’re headed
Our 35-year-old has $50,000 saved and puts away $12,000 a year (rising 2% a year), earning 7% before retirement.
| Result | |
|---|---|
| Projected savings at 65 | $1,870,282 |
| Needed at 65 | $2,001,739 |
| Savings last until | Age 87 |
| Gap | Short $131,456 |
| Extra saving needed to close it | $112 a month |
Which lever closes the gap?
Here’s the same household, changing one thing at a time:
| Change | Savings at retirement | Savings last until | Gap |
|---|---|---|---|
| None (base case) | $1,870,282 | Age 87 | Short $131,456 |
| Retire at 67 instead of 65 | $2,189,895 | Past 90 | Surplus $285,901 |
| Save $15,000 a year instead of $12,000 | $2,242,700 | Past 90 | Surplus $240,961 |
| Spend $50,000 instead of $60,000 | $1,870,282 | Past 90 | Surplus $346,082 |
| Earn 6% before retirement, not 7% | $1,537,592 | Age 82 | Short $464,147 |
Working two more years is powerful because it does three things at once: two more years of contributions, two more years of growth, and two fewer years of withdrawals. Spending less in retirement is just as strong, since it shrinks the target itself.
The last row is the warning. A single percentage point of return over 30 years makes a big difference, and you don’t control markets. Build in a margin rather than planning on the optimistic case.
Withdrawals from traditional 401(k)s and IRAs are taxed as income, so $60,000 of spending may take a larger withdrawal. Roth withdrawals are tax-free if qualified. A mix of account types gives you more control over your tax bill in retirement. See Roth vs. traditional IRA.
Keep the estimate honest
- Plan to a long age. A 65-year-old couple has a good chance that one of them lives into their 90s. Running out at 87 is a real risk, not an edge case.
- Use modest returns. Planning on 5% to 7% before retirement and less after is more defensible than using recent market highs.
- Grab the free money first. An employer match is an instant return. See how the 401(k) match works.
- Recheck every year or two, and after any big change in income, family, or markets.