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How Much Money Will You Need to Retire?

It all depends on what you've saved and how well you wish to live

Person relaxing in chair outside, optimal retirement number

How much in savings will you need to be comfortable in retirement? — Getty Images

En español | So, what's your number?

In other words, how much do you need to retire comfortably? By now, you've likely heard the conventional wisdom: that you should aim to have a nest egg of $1 million to $1.5 million. Or that your savings should amount to 10 to 12 times your current income.

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For people approaching retirement, those figures might be a source of panic, denial and dread. But a true retirement number is different for everyone, says Dan Yu, managing principal at EisnerAmper Wealth Advisors. It depends on factors such as where you'll live and how healthy you'll be as you age. And most challenging of all — how long will you live?

The bottom line: While there's no magic amount you should strive to attain, there are some questions you can ask yourself to determine your optimal "number."

See also: Health Savings Account and retirement security 

What will your living costs be?

The first step is to figure out how much you're spending now. Start by creating a budget to track your expenses. A much-touted rule of thumb says you'll need 70 to 80 percent of your preretirement income after you finish working. But some financial planners are now suggesting that might not be enough. Yu advises clients they'll need at least 100 percent of their preretirement income each year for at least the first 10 years after they stop working. Spending really doesn't slow down in early retirement, he says, as many new retirees ramp up travel, for example.

Will your nest egg last as long as you will?

Many people don't consider longevity when they set savings goals. "Folks are living a lot longer," says Yu, "and that makes retirement planning more challenging than ever." A healthy, upper-middle-class couple who are 65 today have a 43 percent chance that one or both partners will live to see 95. Savings need to be adjusted accordingly.

See also: Save all you can

Will your savings generate enough cash?

There is no way of knowing what will happen to interest rates — and inflation — in future years. But for a retiree to generate $40,000 a year after stopping work, he or she will need savings of about $1.18 million to support a 30-year retirement; this was calculated using average returns of 6 percent and inflation at 2.5 percent, according to Morningstar, a Chicago-based investment-research firm.

What if I haven't saved enough?

The worst thing you can do is throw up your hands if the number feels out of reach, Yu says. First: Save, save, save. Savers can double, on average, their nest eggs in the last decade or so of their working lives, thanks to the magic of compound interest, says Michael Kitces, director of planning research at Pinnacle Advisory Group. Think about going from two cars to one, or cut back on travel to keep spending low. If the market delivers a historically typical 7 percent annually, "your money doubles every decade," Kitces says.

Is your retirement on track? Plan your financial future so you can retire when — and how — you want

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