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Retirement looks different for everyone. But whether you plan to spend your golden years jet setting around the world, playing on the beach with your grandchildren or tending to your garden, one thing is true: It’s going to cost you.
Just how much it will cost you isn’t quite as clear. Wealth management company Northwestern Mutual’s 2025 Planning & Progress study found that Americans now predict they’ll need $1.26 million to cover retirement. A separate Charles Schwab study from 2024 reported that workers think the number is closer to $1.8 million. Americans’ actual retirement savings lag far behind either of those figures.
In reality, though, the dollar amount that you’ll need in retirement will come down to your specific lifestyle, how long your retirement will be, how much you’ve saved over the years and what other funds are available to you. Doing the math while you’re still working full-time will mean less of a headache down the road.
“Realizing in retirement that you may not have enough will require more substantial changes to how you may need to live and what you can spend on,” says Anjali Jariwala, financial advisor and founder of FIT advisors. “It is easier to make changes while you are still earning income.”
So take out your pen and paper (or more likely, a spreadsheet and calculator) and answer the following questions to map out how much money you actually need saved for retirement.
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1. How much will you spend in retirement?
The financial planning industry has come up with a general rule of thumb for how much you’re likely to spend in retirement: 80% of your pre-retirement income. The thinking is that in your later years, some costs — like commuting, mortgage payments, Social Security or Medicare taxes, retirement contributions — are expected to go away. But Mark Parthemer, chief wealth strategist at wealth management firm Glenmede, says that for as often as that is correct, there are as many times when it’s not completely true.
Parthemer says the trick is to a more reliable method is to look at your current lifestyle and how much it costs, and then ask yourself what is going to change. It works best if you’re very detailed in this exercise; you may think you have a good idea of how much of your income every month goes to necessities vs. discretionary spending, but you may be surprised if you spend a few months actually tracking your spending.
“Everyone is their own universe,” he adds. “They have their own circumstances, health, family, travel desires.”
You want to be sure you give yourself a buffer, too. Sure, you may not be covering costs like gas for your drive to and from work, but you’re probably also adding new retirement expenses, like a home renovation necessary for aging in place or increased medical costs tied to getting older.
And don’t forget about inflation. The Federal Reserve tends to target a 2% rate of inflation each year, but some costs, like health care, are expected to rise even faster.
Life is unpredictable, and it’s impossible to know exactly how much you’ll spend in retirement. But calculating how much you spend on a regular basis now and adjusting that for a changing lifestyle and inflation is the first step in determining how much money you’ll need once you ditch your nine-to-five.
2. How long will your retirement be?
This question may be even more tricky than calculating how much you’ll spend in retirement, since no one knows how long they’ll live. But we can take an educated guess.
The median retirement age is 62, according to the most recent Retirement Confidence Survey conducted each year by the Employee Benefit Research Institute. That might sound like it’s on the early end, and based on workers’ expectations, it is: Most expect to wait until at least 65 to permanently clock out. That means you likely need to prepare for a longer retirement than you’re expecting. With the life expectancy at 78.4 years as of 2023, according to the Centers for Disease Control and Prevention (CDC), it makes sense to factor in a retirement of at least 15 to 20 years.
For some people, though, planning for 20 years won’t be enough. While the average life expectancy in the U.S. has been in the high 70s for many years, the share of Americans who are living much longer is also growing. The number of Americans living until 100, for example, is expected to quadruple over the next three decades, according to the U.S. Census Bureau. Depending on when they leave the workforce, future centenarians could have a retirement that approaches 40 years — nearly as long as they were in the workforce.
You should try to build a more individualized life expectancy estimate by considering factors like your family health history and gender, as well as your behaviors around smoking, diet and exercise. Women live much longer than men, with an 81-year life expectancy versus 76 years for men. And there’s a long line of research linking physical activity to longevity. A study published in the American Heart Association’s journal in 2022, for instance, found that exercising five to 10 hours a week was associated with a 26% to 31% lower risk of death from any cause than not exercising at all.
3. What will your sources of income be?
When you no longer get an annual salary, you’re (hopefully) not saying goodbye to all of your income.
Visit the Social Security administration’s website to get an estimate of how much your retirement benefits will be once they kick in. Your Social Security benefits are based on your lifetime earnings, but there are other factors that determine your final payments. For example, the longer you delay taking these benefits, the higher your monthly payments will be.
Then, consider other guaranteed income you may have in retirement. Pensions have gone by the wayside in recent decades but some professions — teachers, government workers and hospital workers, to name a few — still rely on these retirement plans to help cover the cost of living in their later years. Annuities and life insurance are other forms of income you may have.
4. How much will you have in retirement savings?
Once you’ve determined out how much you’ll likely spend for how long, and what your annual income will be, you can see the gap that needs to be covered with savings. This is where your money in 401(k)s and other employer-sponsored accounts well as individual retirement accounts (IRAs) comes in.
“Can this deficit be covered with your portfolio assets?” Jariwala asks. “If not, the goal should be to try to save in order to meet the retirement goal.”
Keep in mind that special “catch-up contribution” rules allow older workers to stash away more in their retirement accounts. If it seems your savings will still fall short after dedicated saving in your final working years, consider whether you have access to any non-liquid assets that could pad your accounts. Selling your home and downsizing to a more affordable property or moving to a cheaper area could help you bridge the gap.
A general rule used by financial advisors is that you should be able to have a 4% withdrawal rate for your retirement funds in the first year of retirement and then adjust for inflation with each withdrawal after that. In theory, that would allow you to avoid outliving your money over 30 years by not eroding your principal investment while maintaining the retirement lifestyle you want.
It’s always important to adjust your portfolio to make sure it aligns with your retirement goals and time horizons — but it’s especially important when you’re actually nearing retirement. Take the time to see how much risk you have in your portfolio, and if you’re invested aggressively in riskier assets like stocks, consider trading some of your stock portfolio out for less risky assets, like bonds. Stocks are typically more volatile. In other words, you run the risk of losing money right when you’re about to start drawing down your accounts.
“When you’re younger, time is your friend. You can have a bad year in the stock market but you have plenty of time on your side,” says Chris Blunt, CEO of annuity company Fidelity & Guaranty Life who started his career as a financial advisor. “It’s the exact opposite for retirees. They don’t have the luxury of time on the asset side.”
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