How Much Do You Need To Retire?

According to a recent study, retirement is proving more difficult than expected for many Americans, in large part because they haven’t saved enough and don’t know how much they need. Here are some rules of thumb to help see if you have enough saved for retirement. These are guidelines and may not necessarily fit your situation. See a financial professional.

* Rule of Thumb 1: Estimate the expenses you will have in retirement.

Based on your current expenses, budget out your future cost of living. Many retirees want to travel more, take up another hobby or need more health care services. These expenses may not be in your budget now, so add them to your retirement budget. There also may be expenses you will no longer need and can omit, such as a mortgage or child support. Once you have this number, visit to use an online retirement calculator. Based on this and other information you input, the calculator will give you an estimate of how much you will need for retirement.

* Rule of Thumb 2: You will need approximately 11 times your final year’s pay when you retire.

If you are making $75,000 per year, you will need $825,000 saved. This calculation assumes that you only need 80 percent of your final salary ($60,000) plus your Social Security on which to live. Based on your age and income, here are some multipliers you need to save to have a good chance of replacing 80 percent of your retirement income:

1) 1.5 times your annual income at age 35
2) 4 times your annual income at age 45
3) 7 times your income at age 55
4) 11 times your income at age 65

* Rule of Thumb 3: The 4 percent rule states that you can withdraw 4 percent of your savings in the first year of retirement.

So, if you need $60,000 for retirement income, you will need at least $1,500,000 saved. The assumption behind this rule of thumb is that you are invested in a diversified portfolio of stocks, bonds and cash. It also assumes that you will increase your withdrawals as inflation increases over time. This rule can be problematic if the portfolio does not perform over time, or you have to dip into your savings for an emergency, which lowers your principal.

These are starting points and only provide estimates to help you plan. You may actually need more or less. Daniel Peters at WealthBridge Inc. ( states, “An in-depth personalized financial plan that takes into account different variables will help figure out how much you need for retirement. If you are behind, don’t despair. By working a few years longer and living on 70 percent of your salary, you can cut the savings levels you need to reach by 15 percent to 25 percent.”

As people live longer, it is getting more and more important to be prepared for retirement!