How Much Should You Have Saved for Retirement at Your Age?

Michael Chen

Michael Chen writes about personal finance fundamentals. Bay Area-based · finance enthusiast for 15 years.

Visual representation of the voice · not a photographic portrait

Quick answer: Start with how much you will spend per year in retirement, subtract expected Social Security or pension income, and multiply the gap by 25. That is a rough target. Then compare it with age checkpoints, such as about 1x your salary saved by 30 and 3x by 40, to see if you are on track.↗ Share on X

A simple way to estimate your required retirement savings is this: figure out how much you will spend each year in retirement, subtract what Social Security or a pension will pay you, and multiply the gap by 25. If you need $40,000 a year and Social Security covers $20,000, the gap is $20,000, and $20,000 x 25 = $500,000. Then check your progress against age-based checkpoints. One widely shared rule of thumb, published by Fidelity, says to aim for about 1x your salary saved by 30, 3x by 40, 6x by 50, 8x by 60 and 10x by 67.

These are rules of thumb, not a plan made for you. Your real number depends on your health, your home, your family, taxes and how markets behave. Nobody can promise a result. If you are making big decisions, such as when to retire or how to take a pension, it is worth talking to a fee-only fiduciary financial planner (someone paid by you, not by commissions, and legally required to act in your interest).

Step 1: How much will you spend each year in retirement?

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This is the most important number, and most people skip it. Start with what you spend today, then adjust:

1. Take your current monthly spending. Look at 3 months of bank and card statements and average them.

2. Remove costs that will likely end: commuting, retirement contributions, a mortgage you will have paid off, kids' expenses.

3. Add costs that often grow: health care, insurance, travel or hobbies in the first years, home repairs.

4. Multiply by 12.

A common shortcut is to assume you will need 70% to 80% of your pre-retirement income. It is a starting point. If you plan to travel a lot or still have a mortgage, you may need more.

Step 2: How much will Social Security or a pension cover?

Do not guess this number. Go to ssa.gov and create a free "my Social Security" account. It shows your estimated monthly benefit at different claiming ages, based on your actual earnings record.

Key points in plain words:

• Claiming earlier (from age 62) gives you a smaller monthly check for life.
• Waiting until your full retirement age (67 for anyone born in 1960 or later) gives you the full amount.
• Waiting until 70 gives you a bigger check.

If you have a pension from work, ask HR for your estimated monthly payment. Add both numbers and multiply by 12.

The gap = yearly spending (Step 1) minus yearly income (Step 2). Your savings need to cover this gap.

Step 3: Turn the gap into a savings target

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Here is where the "25x" comes from. Research by financial planner William Bengen in the 1990s looked at past U.S. market history and found that withdrawing about 4% of a portfolio in the first year, then adjusting for inflation, would have lasted at least 30 years in the periods he studied. Dividing by 4% is the same as multiplying by 25.

The past does not promise the future. Many planners now suggest a more careful 3% to 3.5% if you retire early or want extra safety. Here is how the target changes:

Pick the row closest to your gap. That is your rough target in today's dollars.

Step 4: Are you on track for your current age?

Now compare what you have saved today with an age checkpoint. Count all retirement accounts: 401(k), 403(b), IRA, Roth IRA and any brokerage account you have set aside for retirement. Do not count your home or your emergency fund.

This checkpoint assumes you retire at 67 and want to keep a similar lifestyle. If you plan to retire earlier, you need more. If you are behind, you are far from alone, and the next step shows how to catch up.

Step 5: How much do you need to save each month to close the gap?

To estimate it, you need three things: what you have now, how many years until retirement, and an assumed yearly return. Nobody knows the future return. For planning, many people use a conservative after-inflation return of 4% to 5% per year for a stock-heavy mix. Using a lower number keeps you on the careful side.

Here is a worked example with assumptions shown clearly:

• Age: 45
• Already saved: $100,000
• Target: $750,000 (in today's dollars)
• Years left: 22 (retiring at 67)
• Assumed return after inflation: 4% per year

What your current savings may grow to: $100,000 x (1.04 to the 22nd power) is about $100,000 x 2.37 = about $237,000.

What is still missing: $750,000 - $237,000 = about $513,000.

Monthly savings needed: to build about $513,000 in 22 years at 4% a year, you would need to put in roughly $1,200 to $1,250 per month (about $15,000 a year).

You do not have to do this math by hand. Any free online "retirement calculator" or "future value calculator" will do it. The important part is to enter honest numbers and a modest return.

What if the monthly number looks impossible?

Do not give up. Small changes add up over 10 or 20 years. These are the main levers, from easiest to hardest:

1. Get the full employer match. If your employer matches part of your 401(k) contribution, contribute at least enough to get all of it. It is part of your pay.

2. Raise your contribution by 1% each year. Many plans can do this automatically. You barely notice it.

3. Use catch-up contributions after 50. The IRS lets people 50 and older put extra money into 401(k)s and IRAs. Check irs.gov for this year's limits, because they change.

4. Cut fees. A fund that charges 1% a year instead of 0.1% can eat a big piece of your money over decades. Look for low-cost index funds (funds that simply follow the whole market).

5. Work a few years longer. Each extra year means one more year of saving, one less year of withdrawals, and a bigger Social Security check if you delay claiming.

6. Lower your planned spending. Paying off the house before retiring or moving somewhere cheaper can shrink the gap a lot.

Mistakes that throw off your number

• Forgetting inflation. Prices rise over time. That is why this article uses returns *after* inflation and targets in *today's* dollars.
• Forgetting taxes. Money in a traditional 401(k) or IRA is taxed when you withdraw it. Roth money usually is not. If most of your savings is pre-tax, plan for a bigger target.
• Ignoring health care before 65. Medicare starts at 65. If you retire earlier, you need to pay for health insurance on your own.
• Counting on one great year in the market. Plan with modest numbers. If returns are better, you will be ahead.
• Raiding retirement accounts early. Withdrawals before 59 and a half usually come with a 10% penalty plus income tax, with some exceptions.

When should you talk to a professional?

A good planner is worth it if:

• you are within 5 to 10 years of retiring;
• you must choose between a pension lump sum and monthly payments;
• you have a large amount in pre-tax accounts and want to plan taxes;
• you are married and need to decide when each spouse claims Social Security;
• you feel stuck or anxious about the numbers.

Ask directly: "Are you a fiduciary at all times, and how are you paid?" A fee-only planner charges a flat fee or hourly rate, not commissions on products.

Your next step

This week, block one hour and do three things: log in to ssa.gov to get your benefit estimate, add up the balances of all your retirement accounts, and average your last 3 months of spending. Write those three numbers down, plug them into Steps 3 to 5, and you will know your target, your checkpoint and your monthly number. If the gap looks big, start with the employer match and a 1% increase this month.

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Educational content, not personalized financial advice. Sources cited where applicable.