The Future Cost of Retirement: How Much Younger Generations Will Need To Save

Will you have enough money stashed away for your golden years?

After decades of working, you should be able to reward yourself with leisure time spent traveling, pursuing a hobby or spoiling your grandchildren. However, a previous GOBankingRates survey found that 42% of Americans have less than $10,000 saved for their golden years — which is far from enough for a comfortable retirement. So, how much will you actually need to save in order to retire?

Calculating the future cost of retirement for all Americans is nearly impossible. After all, the cost of living will change, and you may have unforeseen costs for healthcare and other expenses. But, you can at least estimate future costs by understanding the impact of inflation and learning how much seniors are currently paying for various necessities. It’s also important to examine your own spending so that you can gauge your future habits in retirement.

Find out how much Gen Xers, millennials and Gen Zers need to save for their golden years, so you know what to expect down the line.

How Much Should Young People Save For Retirement?

There are many different ways to calculate how much you should save for retirement. For example, Fidelity Investments uses a simple rule of thumb to help ensure people stay on track for their retirement savings goals. Dubbed the “10 times savings approach,” Fidelity’s rule shows exactly how much you need in savings at different ages in order to have 10 times your income saved by the time you retire at 67 years old. By saving more as your earnings increase and maximizing your retirement savings contributions during your peak earning years, you can amass a sizable nest egg.

Here’s how it works for someone who earns $69,062 annually at age 30 and eventually a $100,213 salary at age 67:

AgeHow Much You Should Have SavedHow Much You Should Aim To Save
30$69,0621x your income
35$155,8442x your income
40$260,3463x your income
45$373,9904x your income
50$601,2786x your income
55$701,4917x your income
60$801,7048x your income
67$1,002,13010x your income

If you are young and have many years before you plan to retire, Fidelity’s savings approach provides good goals to shoot for. “Starting early is always the best strategy,” said Bobbi Rebell, a certified financial planner and author of “How to Be a Financial Grownup.” “The earlier you start, the more benefit you’ll get from compound interest and your 401(k) company match.”

However, GOBankingRates’ survey found that most Americans aren’t on track to save at this pace. Most 18- to 34-year-olds — 57%, to be exact — have less than $10,000 saved for retirement. Many of these people still have time to reach their savings goal by age 30 if they’re diligent about it, but those who are already over age 30 have some catching up to do.

The results were slightly better for Americans ages 35-54. In this age group, 17% of respondents have $300,000 or more socked away in their retirement savings accounts, and 23% have between $100,000-$299,999 saved. Unfortunately, over a third — 37% — also have less than $10,000 saved for retirement.

Discover: What a Comfortable Retirement Will Cost You in Each State

The Cost of Retirement: Healthcare, Housing and More

To determine what future retirees can expect to spend, GOBankingRates analyzed the costs of healthcare, food, clothing, transportation, and housing for seniors in 1966, seniors in 1985, and seniors today. By applying the historical rate of growth to each category, the study was able to project what these costs might look like when younger generations retire from the workforce.


In 1961, a couple spent an average of $355 per year on healthcare. That figure rose to $565.19 per year by 1985. Today, a 65-year-old couple retiring in 2019 will pay $285,000 in healthcare costs throughout their retirement, whereas a single person will pay $142,500, according to the Fidelity Retiree Healthcare Cost Estimate.

Applying this rate of increase, a 30-year-old couple planning to retire in 2054 at age 65 can expect to spend $976,116 on healthcare costs in retirement. A Generation Z couple, born in 2008 and planning to retire in 2073 at age 65, will likely spend a whopping $1,904,337 on healthcare in their golden years.

Healthcare costs have been rising faster than inflation for some time, according to a 2018 Vanguard study, and retirees are likely to spend more on healthcare as they grow older — creating a perfect storm of growing healthcare costs in retirement.


Housing costs tend to go down as you get older. Retirees may downsize their homes, pay off their mortgages, or sell their homes and rent, according to a recent study by the Limra Secure Retirement Institute.

The average American forks over $19,884 per year on housing, but the average amount spent by someone 65 and older is $16,668 per year — which is $3,216 less than the national average. And, older retirees tend to spend less on housing than younger retirees. Americans ages 75 and older set aside an average of $14,692 per year on housing, whereas those ages 65-74 spend an average of $18,068 annually.


Transportation is another cost that usually goes down in retirement. The average 65-year-old spends $7,513 per year on transportation, compared to the national average of $9,576.

Gone are the expenses associated with commuting to work, which frees up retirees’ budgets, according to the Limra Secure Retirement Institute study. Couples may also choose to keep just one car after retiring, further reducing transportation costs.

Food and Clothing

Food spending typically declines slightly in retirement, which may be attributed to reduced appetite in older people as well as more time for retirees to cook at home. The average American spends $4,363 per year on food, compared to an average of $3,815 per year for those ages 65 and older.

Additionally, spending on clothes drops considerably in your golden years. Once you’re retired, there’s no need to purchase work-related clothing, and you’ll probably spend less on services like dry cleaning. Those ages 65 and older spend just $1,193 per year on apparel and services, but the average American needs to budget $1,833 per year.

In terms of how much income Americans are allocating to these expenses, spending on food and clothing has dropped considerably over the years. In 1960-61, clothing accounted for 14.7% of the American family’s annual expenditures; today, it’s just 3.1% of their budget.

Do It Like the Pros in 8 Steps: The Ultimate Financial Planning Guide

How Do Rising Costs and Inflation Affect Future Retirement Costs?

When you’re calculating how much money you’ll need for retirement, you must account for inflation, or the growing cost of necessities. Inflation dictates that when prices increase, your purchasing power will decrease. While you’re working, you may get a pay bump to cover the rising costs of food or gasoline, for example. But, when you’re retired, those additional costs will have to come out of your retirement savings.

If you’re collecting Social Security, you may receive small annual bumps to compensate for the growing cost of living. However, Social Security might not cover all of your retirement expenses to begin with. And, with healthcare making up a significant portion of retirees’ budgets, rising healthcare costs can hit seniors particularly hard.

So, what can younger people do to prepare for a potentially expensive retirement?

Choosing investments that keep pace with or outperform inflation is important. If you put your money in a regular savings account earning 1% interest and inflation is growing at 2.5%, you’ll lose purchasing power every year. You can protect yourself by moving your money to a high-interest savings account or investing in stocks that perform at a higher rate than inflation — and by starting early to take advantage of compound interest.

You could also move to a state with cheaper housing costs or lower taxes, like one of the best states for retirement taxes. Uprooting just to save money may seem extreme, but if you’re considering where you want to raise your family or deciding between multiple job offers, it might be a smart move to take housing costs and taxes into consideration.

Start Planning For Retirement Now

If you haven’t saved nearly enough for retirement — or you haven’t started saving at all — don’t despair. There are steps you can take that will help you achieve a more comfortable retirement:

  • Start as soon as possible. Every little bit counts, so you don’t need to wait until you get your raise or win the lottery to start saving for retirement.
  • Review your budget. Examining your current spending and using budget templates will help you see where you can carve out more money for savings. As you get closer to retirement, look for ways to slowly cut things out of your budget so that you get in the habit of spending less.
  • Start a side hustle. “We’re living in the golden age of the side hustle,” Rebell said. “Think of other ways you can make money, in addition to your full-time job. Babysit for three hours on a Saturday night, and make $50.”
  • Take advantage of the company match for your 401(k). “This is free money,” Rebell said. “If you invest $1, and your company matches that $1, you’re getting a 100% return on your investment on day one. You’ll never get that kind of return anywhere else.”
  • Plan for increasingly larger contributions. “Set up your 401(k) or [individual retirement account] contributions so they increase each year,” Rebell said. “Start by contributing 3% of your pay, and increase it to 4% after a year. Keep increasing it every year until you are saving 10% to 15% of your pay for retirement.”

The future cost of retirement might seem daunting, but with the right preparation, you’ll be well equipped to face these expenses head-on when you reach your golden years.

Click through to see the financial gap between boomers and millennials.

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Methodology: To calculate the future cost of retirement, GOBankingRates analyzed healthcare, groceries, clothing, transportation and housing expenditures from the 2017 Consumer Expenditure Survey by the Bureau of Labor Statistics; expenditures from 1985, sourced from the Bureau of Labor Statistics; and expenditures from 1960-61, sourced from the Bureau of Labor Statistics. For the future cost of healthcare, the 2018 retirement healthcare cost for individuals and couples was extrapolated based on the average year-over-year increase in healthcare costs from 2002-2018, sourced from Fidelity’s annual report. The study used Fidelity’s scale and pretax mean incomes, sourced from the Bureau of Labor Statistics’ Consumer Expenditure Survey, to calculate how much Americans need to save by retirement.

About the Author

Karen Doyle is a personal finance writer with over 20 years’ experience writing about investments, money management and financial planning. Her work has appeared on numerous news and finance
websites including GOBankingRates, Yahoo! Finance, MSN, USA Today, CNBC,, and more.