A lot goes into figuring out how much money you need to retire, but experts offer rules of thumb you can use as a starting point. One common piece of advice is that you need about $1 million, but can you retire on $1 million comfortably?
Another suggests having 10 times your salary, on average, saved by age 65, and spending no more than 4% per year.
Yet another advises saving enough to replace 80% of your pre-retirement salary for the roughly 20 years you can expect to live in retirement. But in the end, the amount you need to retire depends as much on the amount you spend as it does on the amount you have saved.
You can spend your golden years living on less and still live well. To figure out how much you’ll need to retire, you must assess your lifestyle needs, understand your risk tolerance, consider the effects of inflation and, most importantly, learn how to create a budget and follow it.
Planning Retirement Savings Is About Spending, Not Income
Your lifestyle today can have an impact on how much money you have left over in your retirement years. And how much you spend in retirement impacts how long that savings will last.
You can’t anticipate every expense, but starting with spending rather than an arbitrary savings goal gives you a more realistic picture of how much you need to retire. If you plan to retire with no mortgage, to a simple lifestyle in a location with a low cost of living, $500,000 might be plenty. If, on the other hand, you plan to live lavishly and travel extensively, you might need $1.5 to $2 million or more. For the way most people spend, the optimum amount is somewhere in between.
Interesting to note: A 2022 report from investment firm BlackRock revealed that only 43% of retirees plan to spend consistently throughout their retirement. The rest plan to ramp up or ramp down spending as they age — and some have no spending plan at all. Keep that in mind as you try to forecast your retirement spending.
Living on Less in Retirement
In 2021, the most recent year for which annual data is available, household spending peaked at $83,854 per year for the 45-to-54 age group, then dropped to $45,820 per year for people 75 and older, according to the U.S. Bureau of Labor Statistics. The figures show a trend of spending less and living more simply in the golden years. With a reduction in overall expenses, it’s easier to live well on less during retirement.
Drive Less or Use Cheaper Transportation
Seniors between 65 and 74 spend an average of $8,356 on transportation costs annually, according to the BLS. If you opt for an economy car, you can save money on gas and on the actual car, because it will cost a lot less than a luxury model. You might also consider using public transportation.
Downsize Your Home
The best places to retire might not be where you lived pre-retirement. Selling a home in California or the Northeast U.S. would enable you to buy something cheaper in, say, Detroit or Philadelphia — and you’d likely have cash left over.
Cut Back on Dining Out and Entertainment
Spending less on things like dining out is an easy way to cut expenses. Be coupon-savvy at the grocery store and buy only what you need. Seek out low-cost activities with a senior discount, or clubs and organizations aimed at your age group.
Rely More on Investments Than Benefits
Your liquid savings probably won’t be your only assets when you enter retirement. Any employer-sponsored savings you’ve accrued can significantly supplement your retirement savings, and other nest egg investments you might have — like annuities or CDs — can also help when you retire.
Experts advise that with current and forthcoming Social Security trends, it’s not wise to rely solely on Social Security benefits to fund your retirement. If you are looking to further build your portfolio or want to start investing, explore safe, high-return investment options.
How Much Money Do You Need To Retire?
Estimating how much money you’ll need in retirement can be a difficult task, but GOBankingRates’ retirement calculator simplifies the process. Just enter your current savings, your anticipated Social Security and pension income and your total retirement income goal. The calculator will tell you how much money you’ll need for the number of years you expect to live in retirement.
The calculator is also useful for experimenting with different scenarios to see how your needs might change if you were to save more or less or retire earlier or later. That way, you can adjust your retirement budget for changing circumstances.
Should I Retire Now?
No hard-and-fast rule mandates you must retire at 65, or even at your full retirement age of 66 or 67. More seniors are choosing to work past the retirement age nowadays, and some are forgoing retirement altogether.
Social Security offers financial incentives to delay retirement. Currently, the full retirement age for a worker born in 1957 or later is 66 or 67. According to the Social Security Administration, working an extra year results in the worker receiving 108% — in other words, an extra 8% — of their monthly Social Security benefit because they delayed receiving benefits for a year.
If they wait until age 70, they’ll receive 132%, or an extra 32%, of their monthly benefit because they delayed getting benefits for four years. After age 70, however, delaying retirement stops increasing benefits.
Avoid Retirement Pitfalls
Now that you have a better idea of what to do to save for your later years, remember to avoid some of the potential pitfalls, like carrying debt or prematurely withdrawing retirement funds.
So how much do you need to retire? Aiming for $1 million — or 10 times your salary, or enough to replace 80% of your salary — is a great goal to have. But if you retire on less, with a bit of budgeting, you can still have a happy, healthy retirement.
Information is accurate as of Aug. 1, 2023.
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- Schroders. 2022. "Schroders US Retirement Survey Results - 2022."
- BlackRock. 2022. "To spend or not to spend?"
- BlackRock. "Determining your budget in retirement."
- T. Rowe Price. 2022. "You’re Age 35, 50, or 60: How Much Should You Have Saved for Retirement by Now?"
- Charles Schwab. "Beyond the 4% Rule: How Much Can You Spend in Retirement?"
- Bureau of Labor Statistics. "Table 1300. Age of reference person: Annual expenditure means, shares, standard errors, and coefficients of variation, Consumer Expenditure Surveys, 2021."
- New York Life. "The 4% rule for retirement."
- AARP. 2021. "How Much Money Do You Need to Retire?"
- U.S. Department of Labor. 2021. "Top 10 Ways to Prepare for Retirement."
- U.S. Social Security Administration. "Starting Your Retirement Benefits Early."