How Much to Save for Retirement?

How Much to Save for Retirement?

Once in a while I get asked by someone “what is the amount of money that I need at retirement to live on for the rest of my years?” Just, what number. If you have gone through a retirement analysis with a good advisor you probably know it’s not that simple. But I’ve tried to explain below the mechanics of coming up with this number, since it still gets asked now and then. We actually can calculate that number but with SO many variables in play that number would be good for a very short amount of time as the variables kick in. Please enjoy the explanation below:

  • With some straightforward calculations, we can estimate what a person would need to have saved in order to be able to spend $48,000 per year in retirement. Assuming that this $48,000 per year needs to increase at 3% inflation annually, that the retiree investments will return 6% annually after tax, and that person lives to 90 years old, an individual would need roughly $868,000 to fund that stream of income at age 65. Given these factors and assumptions, you’d need to start retirement with about 18 times the annual amount you want to spend. This can be a shock to those nearing retirement.  Fidelity Investments was quoted recently as saying that the average retirement account balance is only around $91,000.


  • It’s not the end of the world if you don’t hit that number, but if you don’t have sufficient funds accumulated by retirement, the retiree will be forced to rely on Social Security and possibly state Medicaid.


  • It’s important to know that the above estimate assumes a vacuum environment for returns and inflation – and as we all know, rates of return and inflation are constantly changing and are impossible to predict. It’s why good advisors run simulations to see both the best case and worst case scenarios in a retirement calculation. For example, if you started your retirement spending period with negative returns in the first two years of the scenario, you may need more than the “18 times” estimate above.


  • This estimate does not take into account that a person’s spending may drop off or increase at some point during retirement. It  also doesn’t take into account charitable gifts that a person may want to give, health problems that may be encountered, or even if they will move to a less expensive place to live in retirement. There are many factors that will change this “18 times” calculation shown above, so it’s important to find an advisor you trust that can help you to A) identify your goals, and B) develop a plan to help you reach them.

About The Author

As Vice President and Senior Wealth Advisor, Greg provides financial analysis to high net worth individuals. He is the author of several articles for various publications and nonprofit organizations on estate and financial planning subjects.