How much will you need to retire? And will it be enough? A survey from Schwab Retirement Plan Services found the average 401(k) participant thinks they'll need $1.7 million to retire. Roughly half of the people surveyed believe they can meet their retirement goals. Of course, many people in the U.S. aren't investing enough to reach that savings goal—and the income it brings. To find out if your retirement income will be enough, you have to start by estimating your retirement expenses.
Key Takeaways
- To know if you'll have enough income in retirement, start by estimating what your expenses should be in retirement.
- The 4% rule says you can probably spend about 4% of your savings each year in addition to your Social Security benefits and traditional pension if you have one.
- Although it may be tricky to determine how much you'll need, you can get a good grasp on a budget the closer you are to retirement.
- Be sure to account for enough to cover any additional expenses, such as repairs, vacations, and emergencies.
- If your retirement income won't be enough to cover your expenses, find a way to increase your income and reduce your expenses.
Nashville: How Do I Invest for Retirement?
Retirement Expenses
There are various formulas to estimate retirement expenses, all of which are rough guesses at best. One well-known rule is the 80% rule. This rule of thumb suggests that you'll need to ensure you have 80% of your pre-retirement income per year in retirement. This percentage is based on the fact that some major expenses drop after you retire, like commuting and retirement-plan contributions. Of course, other expenses may go up (vacation travel, for example—and, inevitably, health care).
Many retirees report that their expenses in the first few years not only equal but sometimes exceed what they spent while working. One reason for this is that retirees may have more time to go out and spend money.
It's common for retirees' expenses to go through three distinct phases:
- Higher spending early on
- Modest spending for a long period after that
- Higher spending near the end of life due to medical or long-term care expenses
Many retirees find they spend the most money in both the early and the final years of retirement.
Standard of Living
Of course, future expenses are hard to predict. But the closer you are to retirement, the better idea you probably have for how much money you'll need to sustain your current standard of living—or support a different one.
If you use that as a base, subtract any expenses you expect will go away after you retire and add in any new ones. That will give you at least a ballpark figure to work with.
If you anticipate any big bills (a lot more travel, a brand new kitchen), count those in, too. The same goes for any major cost-savers—for example if you plan to downsize and move to a less expensive home.
How Much Do I Need to Retire?
Many financial advisors boil down this answer to another rule of thumb, at least as a starting point: the 4% sustainable withdrawal rate.
Essentially, this is the amount you can theoretically withdraw through thick and thin and still expect your portfolio to last at least 30 years. Not every expert today agrees that a 4% withdrawal rate is optimal, but most would argue you should try not to exceed it.
If you stick to the 4% rule, here's how much you could withdraw annually from three different nest eggs:
- $500,000: $20,000 a year
- $1 million: $40,000 a year
- $2 million: $80,000 a year
To figure out how much income you'll need in retirement, take your estimated monthly expenses (be sure it's realistic) and divide that number by 4%. So, if you estimate you'll need $50,000 a year to live comfortably, you'll need $1.25 million ($50,000 ÷ 0.04) going into retirement.
Retirement Income
Now that you have some notion of your retirement expenses, the next step is to see whether your income will be enough to cover them. To do so, add up how much income you expect to receive from three key sources:
- Social Security retirement benefits
- Defined-benefit pension plans
- Retirement savings
Social Security Retirement
If you've been working and paying into the Social Security system for at least 10 years and have earned 40 credits, you can get a projection of your Social Security retirement benefits by using the Social Security Retirement Estimator. The closer you are to retirement, the more accurate the estimate is likely to be.
Remember that the earlier you take benefits, the less you'll get each month. You can opt to take benefits as early as age 62 or as late as age 70, after which there's no further incentive for waiting since you will receive the full amount whether it is age 70 or higher.
In December 2022, the average Social Security retirement benefit was $1,688.35 a month. The most you can receive depends on your age when you start collecting benefits.
For 2023, the maximum monthly benefits are as follows:
- $4,555 if you file at age 70
- $3,506 at age 66
- $2,572 at age 62
Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase by 8.7% in 2023.
Defined Benefit Plans
If you have a pension coming to you from your current employer or a former one, the plan's benefits administrator can give you an estimate of how much you'll get when the day comes.
If you have a spouse, you'll want to consider your potential income under different scenarios, such as taking benefits in the form of a joint and survivor annuity, which continues to provide a specified percentage of your benefits to your spouse if you die first.
Retirement Savings
Retirement savings include everything you've stashed in your 401(k)s, IRAs, health savings accounts (HSAs), and other accounts you have earmarked for retirement.
If you have a traditional IRA or 401(k), you have to start taking required minimum distributions (RMDs) at age 73 (up from 72 in 2022 and previous years). Note that Roth IRAs have no RMDs during your lifetime (although Roth 401(k)s do). Those RMDs will determine the monthly income you receive from those accounts once you hit age 73. Still, you can start taking money out of an IRA or 401(k) as early as age 59½ without a penalty.
Your Personal Bottom Line
So after you add it up, if your total retirement income exceeds your predicted expenses, you probably have enough for retirement. But, of course, it wouldn't hurt to have more.
But if it looks like you're going to fall short, you may need to make some adjustments and find ways to increase your income, lower your expenses, or both. For example, you could:
- Work a few more years, if that's an option
- Boost the portion of your pay that you set aside for retirement
- Adopt a more aggressive investment strategy
- Cut back on unnecessary spending (always a good choice)
- Downsize to a smaller, more affordable home
The sooner you do the math, the more time you'll have to make the numbers work in your favor.
Saving vs. Investing
Saving often results in lower returns and retirement account balances than investing. People generally save money to buy things and for emergencies. The money is there when you need it, and it has a low risk of losing value—along with small potential gains.
On the other hand, investing is done with long-term goals in mind. When you invest money, you can potentially have better long-term returns but with more risk. The key is to find the balance between risk and reward based on your risk tolerance and time horizon.
Savings Rates: What's Enough?
While having a dollar amount as your long-term savings goal is good, it's helpful to focus on how much you should sock away each year.
About 10% is the historical recommended savings rate. Schwab further refines that to say that if you start in your 20s, you can retire comfortably with a 10% to 15% savings rate. Here's how a few scenarios could play out for a future retiree.
5% Retirement Savings Rate
Let’s assume that Beth,a 30-year-old, makes $40,000 a year and expects 3.8% raises annually until retirement at age 67. Further, with a diversified portfolio of stock and bond mutual funds, Beth expects a return of 6% annually on her retirement contributions.
With a 5% contribution rate throughout her working life, Beth will have saved $166,770 by age 67. If she wants 85% of her pre-retirement income to live on and also receives Social Security, then her 5% retirement savings (with pay increases and 6% investment return) are significantly short of the mark.
To match 85% of her $153,167 pre-retirement income in retirement, Beth needs $1.95 million saved by age 67 to meet her goals. Unfortunately, a 5% savings rate doesn't place her savings at even 10% of the funds she'll need. A 5% retirement savings rate isn’t enough.
10% and 15% Savings Rates
Keeping the above assumptions about her salary and expectations, a 10% savings rate yields Beth $313,142 at age 67. Her projected needs remain the same at $1.95 million. So even at a 10% savings rate, Beth misses the amount of her preferred savings.
Even if Beth pumps up her savings rate to 15%, she won't reach the $1.95 million amount. Adding in her anticipated Social Security of $3,808 per month (totaling $665,440 for 15 years), her retirement savings will be $1.2 million, about $750,000 short.
Does this mean that individuals who don’t save 15% or more of their income will be doomed to a sub-standard retirement? Not necessarily—the key is increasing your contribution as your income increases. If you live conservatively and increase your contributions to your retirement plan and investment principal as your income rises over time, you can increase the chances of meeting your retirement goals.
Conservative Assumptions
As with any future projection scenario, we’ve made some assumptions. Investment returns could be higher than 6% annually. Beth might live in an area with a low cost of living, where housing, taxes, and living expenses are below the U.S. average. She might need less than 85% of her pre-retirement income, or she may choose to work until age 70. Her salary might grow faster or slower than 3.8% annually.
All of these optimistic possibilities would net a larger retirement fund and lower living expenses in retirement. Consequently, in a best-case scenario, Beth could save less than 15% and have a sufficient nest egg for retirement.
What if the initial assumptions are too optimistic? A more pessimistic scenario includes the possibility that Social Security payments might be lower than they are now. Or Beth may not continue on the same positive financial trajectory.
Alternatively, Beth might live in Chicago, Los Angeles, New York, or another high-cost-of-living region where expenses are much higher than in the rest of the country. With these gloomier hypotheses, even the 15% savings rate might be insufficient for a comfortable retirement.
Measuring Your Needs
If you've reached mid-career without saving as much as these numbers say you should have put aside, it's important to plan for extra savings or income streams from now on to make up for the shortfall.
Alternatively, you could plan to retire somewhere with a lower cost of living to make your money last longer. You can also plan to work longer, which will augment your Social Security benefits and earnings. And remember, your Social Security benefit will be higher if you wait until your full retirement age to collect. And it will be even higher if you delay until age 70.
If you're looking for a single number to be your retirement nest egg goal, there are guidelines to help you set one. Some advisorsrecommend saving 12 times your annual salary. Under this rule, a 66-year-old$100,000 per year earner would need $1.2 million at retirement.But, as the former examples suggest—and given that the future is unknowable—there's no perfect retirement savings percentage or target number.
What Is the Average 401(k) Balance for a 65 Year Old?
According to Vanguard, the average balance for those 65 and older in 2021 was $283,439 for participants with no loans.
Is $1.5 Million Enough To Retire at 65?
Depending on your goals and plans for retirement, $1.5 million is enough to withdraw $60,000 per year for 25 years.
What Does the Average Person Have When They Retire?
If the average retirement age is 65, the average person has $283,439 in their account when they retire.
The Bottom Line
Clearly, planning for retirement is not something you do shortly before you stop working. Rather, it's a lifelong process. Throughout your working years, your planning will undergo a series of stages. You'll evaluate your progress and targets, and make decisions to ensure you reach them.
A successful retirement depends not only on your own ability to save and invest wisely but also on your ability to plan. How much income you'll need in retirement is hard to know and tricky to plan. But one thing's for certain. It's far better to be overprepared than to wing it.
FAQs
One well-known rule is the 80% rule. This rule of thumb suggests that you'll need to ensure you have 80% of your pre-retirement income per year in retirement. This percentage is based on the fact that some major expenses drop after you retire, like commuting and retirement-plan contributions.
Is 70% of income enough for retirement? ›
Your Income Replacement Rate
Start with a general rule of thumb. “After analyzing many scenarios, we found that 75% is a good starting point to consider for your income replacement rate,” says Roger Young, CFP®, a thought leadership director with T.
What is considered a good monthly retirement income? ›
65-74 years: $59,872 per year or $4,989 per month. 75 and older: $43,217 per year or $3,601 per month.
How much money do you need to retire with $100000 a year income? ›
The earlier you plan for retirement, the better shape you're likely to be in. Bringing in $100,000 a year may require total investments worth close to $2 million. Social Security, pensions, and retirement accounts are not the only sources of income in retirement.
What is the average 401k balance for a 65 year old? ›
Average and median 401(k) balance by age
| Age | Average Account Balance | Median Account Balance |
|---|
| 35-44 | $97,020 | $36,117 |
| 45-54 | $179,200 | $61,530 |
| 55-64 | $256,244 | $89,716 |
| 65+ | $279,997 | $87,725 |
2 more rowsJan 20, 2023
First, let's look at some statistics to establish a baseline for what a solid retirement looks like: Average monthly retirement income in 2021 for retirees 65 and older was about $4,000 a month, or $48,000 a year; this is a slight decrease from 2020, when it was about $49,000.
Is $500000 enough to retire on at 70? ›
It also depends on when you are retiring. If you are retiring at 70 — when you get the most from Social Security — and have $500,000, you will be in a much better place than retiring at 60 with no Social Security or Medicare.” It's also possible to retire on $500,000 — or less — if you have access to a pension.
How much do most people retire with? ›
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.
What is a realistic retirement income? ›
The Final Multiple: 10-12 times your annual income at retirement age. If you plan to retire at 67, for instance, and your income is $150,000 per year, then you should have between $1.5 and $1.8 million set aside for retirement.
What percentage of Americans have $100000 for retirement? ›
14% of Americans Have $100,000 Saved for Retirement
Most Americans are not saving enough for retirement. According to the survey, only 14% of Americans have $100,000 or more saved in their retirement accounts. In fact, about 78% of Americans have $50,000 or less saved for retirement.
If your highest 35 years of indexed earnings averaged out to $100,000, your AIME would be roughly $8,333. If you add all three of these numbers together, you would arrive at a PIA of $2,893.11, which equates to about $34,717.32 of Social Security benefits per year at full retirement age.
Can I retire at 40 with $2 million dollars? ›
Retiring at 40 with $2 million is an ambitious goal, but that doesn't mean it's impossible. While you'll need a decent salary or other sources of income or wealth, saving $2 million is not out of reach.
How many Americans have no savings for retirement? ›
More than one quarter of Americans have no money saved for retirement, according to a new survey. Almost one in five people age 59 and older said they didn't have a retirement account, which compared to a quarter of Generation X respondents.
What is a healthy 401k by age? ›
By age 40, you should have three times your annual salary already saved. By age 50, you should have six times your salary in an account. By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary.
Can I retire on 500k plus Social Security? ›
Yes, retiring at 55 with $500,000 is feasible. An annuity can offer a lifetime guaranteed income of $24,688 per year or an initial $21,000 that increases over time to offset inflation. At 62, Social Security Benefits augment this income. Both options continue payouts even if the annuity depletes.
How much does the average retired person live on per month? ›
People ages 65 and older had an average income of $55,335 in 2021. Average annual expenses for people ages 65 and older totaled $52,141 in 2021. 48% of retirees surveyed reported spending less than $2,000 a month in 2022. 1 in 3 retirees reported spending between $2,000 and $3,999 per month.
What is a good amount of money to retire with comfortably? ›
By age 50 : Aim to have five to six times your combined salary in retirement savings by the time you and your spouse are 50 years old. By age 60 : Aim to have seven to eight times your combined salary at 60 years old.
What is the average Social Security check? ›
According to the Social Security Administration (SSA), the average monthly retirement benefit for Security Security recipients is $1,781.63 as of February. Several factors can drag that average up or down, but you have the most control over the biggest variable of all — the age that you decide to cash in.
What percentage of Americans have $500000 in savings? ›
How much do people save for retirement? In 2019, about 50% of households reported any savings in retirement accounts. Twenty-one percent had saved more than $100,000, and 7% had more than $500,000.
Do most Americans have enough money to retire? ›
The percentage of non-retired Americans nearing retirement age (60-67 years old) who said they have enough money to retire was just 24%, a slight uptick from 22% in 2022.
In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.
How many Americans have no savings? ›
At least 53% of Americans admit they don't have an emergency fund, according to a recent poll conducted by CNBC and Momentive. That figure skyrockets to at least 74% for those with a household income below $50,000 per year.
What percentage of retirees have no mortgage? ›
Nearly Three-Quarters of Retired Americans Have Non-Mortgage Debt. Because so many retirees have little to no savings, it's not too surprising that the majority are carrying debt. The most common types of debt held by retirees are credit card debt (49%), mortgages (24%), car payments (20%) and medical bills (18%).
What is the average age most retire? ›
Among those looking ahead to retirement, many expect to step away from work at age 65, according to the 2023 Retirement Confidence Survey. Although 65 is the anticipated median retirement age, workers report retiring at a median age of 62, the survey found.
At what age can you retire with $1 million dollars? ›
A recent analysis determined that a $1 million retirement nest egg may only last about 20 years depending on what state you live in. Based on this, if you retire at age 65 and live until you turn 84, $1 million will probably be enough retirement savings for you.
What net worth is considered rich in retirement? ›
You might need $5 million to $10 million to qualify as having a very high net worth while it may take $30 million or more to be considered ultra-high net worth. That's how financial advisors typically view wealth.
What percent of people max out their 401k? ›
Employees 50 and older can contribute an extra $7,500, up from $6,500 in 2022. In 2021, roughly 14% of investors maxed out employee deferrals, according to 2022 estimates from Vanguard, based on 1,700 plans and nearly 5 million participants.
Is $1,500 a month enough to retire on? ›
That means that many will need to rely on Social Security payments—which, in 2021, averages $1,544 a month. That's not a lot, but don't worry. There are plenty of places in the United States—and abroad—where you can live comfortably on $1,500 a month or less.
How much is Social Security for 80k salary? ›
Final pay of $80,000: benefit of $1,744 monthly, $20,929 yearly. Final pay of $100,000: benefit of $2,026 monthly, $24,315 yearly. Final pay of $125,000: benefit of $2,407 monthly, $28,889 yearly.
What is the Social Security 5 year rule? ›
The Social Security disability five-year rule allows people to skip a required waiting period for receiving disability benefits if they had previously received disability benefits, stopped collecting those benefits and then became unable to work again within five years.
– Nearly 13 percent said they have $50,000 to $99,999. – More than 12 percent said they have $100,000 to $199,999. – Nearly 10 percent have $200,000 to $299,999. – About 16 percent have $300,000 or more in retirement savings.
How much wealth does the average American retire with? ›
Experts advice to have 10x of your annual salary saved by retirement age at 65. The average person aged 65-74 has $1,217,700 in net worth. The median net worth is $266,400.
How much money does the average person have in their bank account? ›
In terms of median values, the 2019 figure of $5,300 is 10.65% higher than the 2016 median balance of $4,790. Transaction accounts provide account owners with immediate access to cash. They include savings, checking, money market, prepaid debit cards and call accounts.
Can a millionaire draw Social Security? ›
Although to some degree it might seem as if billionaires and millionaires in the U.S. shouldn't be collecting Social Security, the truth is there is no law against it, and mathematically it makes sense. Social Security isn't simply a welfare program, with money handed out to anyone who asks.
Is Social Security based on the last 5 years of work? ›
We base your retirement benefit on your highest 35 years of earnings and the age you start receiving benefits.
What is considered a high earner in Social Security? ›
Consistently Earn a High Salary
In recent years, you need to earn a six-figure salary to get a top Social Security payment. The maximum wage taxable by Social Security is $147,000 in 2022.
Can I live off the interest of 2 million dollars? ›
At $200,000 per year in average returns, this is more than enough for all but the highest spenders to live comfortably. You can collect your returns, pay your capital gains taxes and have plenty left over for a comfortable lifestyle. The bad news about an index fund is the variability.
Is $5 million enough to retire at 55? ›
With $5 million you can plan on retiring early almost anywhere. While you should be more careful with your money in extremely high-cost areas, this size nest egg can generate more than $100,000 per year of income. That should be more than enough to live comfortably on starting at age 55.
Why saving 10% won't get you through retirement? ›
Mathematically, 10% Just Isn't Enough
By saving 10%, your money would need to grow at a rate of 6.7% a year for you to retire 40 years from when you start. In order to retire early, after 30 years of contributing, you would need an unrealistically high rate of return of 10.3%.
What happens if you retire with no money? ›
Without savings, it will be difficult to maintain in retirement the same lifestyle that you had in your working years. You may need to make adjustments such as moving into a smaller home or apartment; forgoing extras such as cable television, an iPhone, or a gym membership; or driving a less expensive car.
Across those 50 metros, an average of about 19% of homeowners who are 65 and older still have a mortgage. We also found that homes owned by people in this age group tend to be less valuable than those owned by the general population — and that their monthly housing costs tend to be lower.
What is a good net worth by age? ›
Mean and median net worth by age (2019)
| Age Group | Mean Net Worth | Median Net Worth |
|---|
| Less than 35 | $76,300 | $13,900 |
| 35-44 | $436,200 | $91,300 |
| 45-54 | $833,200 | $168,600 |
| 55-64 | $1,175,900 | $212,500 |
2 more rowsNov 30, 2022
For 2023, the IRS limits the amount of compensation eligible for 401(k) contributions to $330,000. That's an increase from the 2022 limit of $305,000. The IRS adjusts this limit every year based on changes to the cost of living.
Is it smart to max out 401k? ›
Overall, you should max out your contributions every year if you can do so while getting the maximum matching benefit from your employer.
What is the average 401k balance at age 65? ›
Average and median 401(k) balance by age
| Age | Average Account Balance | Median Account Balance |
|---|
| 35-44 | $97,020 | $36,117 |
| 45-54 | $179,200 | $61,530 |
| 55-64 | $256,244 | $89,716 |
| 65+ | $279,997 | $87,725 |
2 more rowsJan 20, 2023
One rule of thumb is that you'll need 70% of your pre-retirement yearly salary to live comfortably. That might be enough if you've paid off your mortgage and are in excellent health when you kiss the office good-bye.
Can I retire at 45 with $1 million dollars? ›
Achieving retirement before 50 may seem unreachable, but it's entirely doable if you can save $1 million over your career. The keys to making this happen within a little more than two decades are a rigorous budget and a comprehensive retirement plan.
How much money does the average person retire with? ›
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.
What is a good percentage of income for retirement? ›
There is a general rule of thumb: When saving for retirement, most experts recommend an annual retirement savings goal of 10% to 15% of your pre-tax income.
What percent of salary do you need to retire? ›
Many retirement experts recommend strategies such as saving 10 times your pre-retirement salary and planning on living on 80% of your pre-retirement annual income.
The average retirement savings by age is: Under 35: $30,170. 35-44: $131,950. 45-54: $254,720.
Can a retired couple live on $60000 a year? ›
Plan to maintain your standard of living
To accomplish this, financial experts say you'll need between 70-80% of your pre-retirement income. So, for example, a couple earning $60,000 per year would need between $42,000 ($60,000 x . 70) and $48,000 ($60,000 x . 80) each year during retirement.
Do I really need 80% of my income to retire? ›
Retirement Expenses
One well-known rule is the 80% rule. This rule of thumb suggests that you'll need to ensure you have 80% of your pre-retirement income per year in retirement. This percentage is based on the fact that some major expenses drop after you retire, like commuting and retirement-plan contributions.
Can you retire $1.5 million comfortably? ›
The 4% rule suggests that a $1.5 million portfolio will provide for at least 30 years approximately $60,000 a year before taxes for you to live on in retirement. If you take more than this from your nest egg, it may run short; if you take less or your investments earn more, it may provide somewhat more income.
How long will $1 million last in retirement? ›
A recent analysis determined that a $1 million retirement nest egg may only last about 20 years depending on what state you live in. Based on this, if you retire at age 65 and live until you turn 84, $1 million will probably be enough retirement savings for you.
How much Social Security on $100,000 salary? ›
If your highest 35 years of indexed earnings averaged out to $100,000, your AIME would be roughly $8,333. If you add all three of these numbers together, you would arrive at a PIA of $2,893.11, which equates to about $34,717.32 of Social Security benefits per year at full retirement age.
Do most retirees have their homes paid off? ›
Many Retired People Don't Expect to Pay Off Mortgages
Traditionally, homeowners looked forward to paying off their mortgage before retirement and living out their golden years without the heavy burden of a monthly house payment. But that scenario is becoming less common, according to a recent survey.
Should a retired person pay off their mortgage? ›
Key Takeaways. Paying off a mortgage can be smart for retirees or those just about to retire if they're in a lower-income bracket, have a high-interest mortgage, or don't benefit from the mortgage interest tax deduction. It's generally not a good idea to withdraw from a retirement account to pay off a mortgage.
What percentage of retirees still have a mortgage? ›
Across those 50 metros, an average of about 19% of homeowners who are 65 and older still have a mortgage. We also found that homes owned by people in this age group tend to be less valuable than those owned by the general population — and that their monthly housing costs tend to be lower.
