How Much Income Do You Need in Retirement?

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Last updated on February 27, 2023 Comments: 9

You know you should be saving for retirement, but if you’ve ever wondered how much you should put away each month, you’ve come to the right place.

In this article, I’ll go over three common ways to save for retirement. Spoiler alert – the best way to save for retirement is to know how much you’ll need. The third method I present gives you the most realistic understanding of that figure, which means you can save the appropriate amount. But the other methods might work for you, too.

1. Spend 80% to 85% of Your Pre-Retirement Income

The first method to figure out how much you need to save for retirement is to plan to spend 80% to 85% of your current income (or what you spend now). So if you spend $3,000 a month now, you’d want $2,400 – $2,500 a month in retirement. The advantage of this is that it offers you a simple target to aim for when planning.

But this method falls flat if you have any unique circumstances. If you spend a significant chunk of your monthly income towards your mortgage but pay it off entirely by the time you retire, you might not need a full 85% of your current income.

However, you might see your expenses increase significantly if you have serious medical issues or need long-term care.

While it’s great to have a simple benchmark to figure out how much money you’ll need in retirement, think of this more as a jumping-off point than a hard and fast rule.

2. Save Based on Your Age

Another common guideline is to look at your age and save a multiple (or a percentage) of your salary. This way, each year, you gradually save a bit more of your income. This method also lets you easily check to see if you’re progressing at the rate experts recommend.

According to Fidelity, the savings benchmarks are:

  • Two times your annual salary by age 40
  • Four times your annual salary by age 50
  • Six times your annual salary by age 60
  • Eight times your annual salary by age 67

Using this calculation, you’d need to have saved the equivalent of your annual salary by the time you’re 30.4 years old.

To do that, you’d need to save 15% of your gross income starting at 25.

If you can stick to a strict savings schedule, this method can work for you. But if you can’t, this method is problematic because you’ll easily fall behind on these benchmarks.

This method doesn’t take fluctuations in your salary into account. Hopefully, you’ll see your salary rise over the years – but it’s hard to plan for that when you’re young.

In addition, these estimates don’t take into consideration your actual expenses, nor the amount you’ll pay in taxes even after retirement (yes, you still need to pay taxes after you retire).

Like we hinted earlier on, if you’re decades away from retirement, you’ll need to make predictions in terms of your earning potential. In other words, if you’re 30 years old and trying to figure out how much you need by the time you’re 65, you’ll have to calculate projections on what your income will be for the next 35 years.

3. Calculate Your Living Expenses

Given the potential inaccuracies of the percentage methods, a more realistic approach is to figure out your actual living expenses. In this method, the calculations are specific to your situation and allow you to adjust as you go. There are two main methods to figure out your actual expenses.

First, go back through your bank and credit card statements to analyze how much you’ve spent in the last few years (if you have a personal finance app, this should be a breeze).

Make sure you review at least a few years’ worth of expenses. Once you have that data, calculate your monthly average. This is your current monthly expenses.

The average number gives you a more realistic view of what you’ll need in retirement – it’s not too high or too low.

If you’re not retiring anytime soon, you’ll need to adjust for inflation — a simple inflation calculator like this one is sufficient.

The second way to calculate your living expenses is to figure out how much of your expenses aren’t living expenses – in other words, how much are you spending on things like your 401(k), income taxes, or other non-retirement savings. The formula for this is simple:

Income – non-living expenses = how much money you’ve actually spent.

For this method, the longer of a period you use to calculate this number, the better.

Again, don’t forget to factor in life and income changes such as starting a family, annual bonuses and buying a house. There are also other expenses that should disappear: things like commuting to work, dining out with coworkers, or paying for your child’s college education. Plus, you can factor your Social Security income into your calculations.

Empower Retirement Planner

No matter which method you use to determine how much income you need for retirement, it’s natural to have questions and concerns. And that’s where the Empower retirement planner tool can help.

With the guidance of this tool, you have another way to calculate your expenses and better plan for your retirement—all based on your current and projected financial status.

There’s a lot to like about the Empower free retirement planner, with these features among the most powerful:

1. Create a Spending Plan

Retirement won’t be nearly as enjoyable if you don’t have money to spend. With this data-driven feature, you can quickly calculate your monthly spending allowance.

With this in front of you, it’s easier to determine how much money you need to maintain your lifestyle in retirement.

2. Run Different Scenarios

Is it possible that you may retire early? How about a couple of years late? Do you have reason to believe you may fall short of your savings goals?

The Empower retirement planner allows you to run and compare different scenarios, thus helping you better plan for the future. And of course, if you find a scenario that you like better, you can turn it into your new plan.

3. Add Income Changes

When your income changes, so will your retirement plans. Add income changes to account for things such as Social Security benefits, pensions, rental income, and/or inheritance.

4. Plan for Big Expenses

Just as your income may change in the future, the same holds true of your expenses—and some of these can be big. Use the Empower retirement planner to plan for expenses such as a vacation home, your child’s college education, or traveling the world.

With the help of the Empower retirement calculator and planner, there’s no need to worry about the future. You’ll have a firm grasp on your retirement goals and how to reach them.

The Bottom Line

You want to watch your retirement savings closely so that you’re able to set aside money according to how much you’ll need once you stop working. There will be times you will save less than desired — that’s ok, just make sure when you have extra money, you save it. Do the best you can and continually adjust your calculations based on what you think you’ll spend during retirement, adjusted for inflation. That way you can enjoy your golden years without worrying whether or not you’ll have enough money to pay the bills.

To track your retirement savings, check out Empower’s free financial dashboard.

(Personal Capital is now Empower)

Article comments

CD says:

What if someone makes $250,000 per year and saves $150,000 of that (paid off house, no car, no kids, and inexpensive hobbies). So taxes and expenses make up $100,000. Why would the estimated income needs be based off the $250,000 salary?

Anonymous says:

Let’s say I make 100K now. Of that, 7.65K goes to Social Security and Medicare, 15K to income taxes, 23K to 401(k), 6.5K to Roth, 25K to mortgage and mortgage prepayments (to be paid off with two years to spare, so more into savings), 2.5K to vehicle payments, and 3.5K to HSA (the balance of about 40K and growing to pay my Medicare Parts X, Y and Z in retirement). That’s a net of less than 25K, which pays my property tax and insurance, utilities including full-blown cable TV and Internet and boneless sirloin, broccoli and vodka. My goal is to have more money in the bank after my first year of retirement than I did when I retired, without working the front door at Walmart or Sam’s Club. I’ve got everything I need right here and I don’t intend to get hijacked or carjacked or shot during an armed robbery at IHOP…I’ll sleep with my iPhone and 9mm. Come and get me!

Anonymous says:

Personally, I’m aiming for 100% at this point being 40 some years away from retirement (if I actually retire and do it at 65-ish), and I don’t include SS in my plans. I have plenty of life changes ahead at this point that may change things, but I figure better to aim high than low.

Anonymous says:

What do you find shocking, fin_indie? That it is so high or that it is so low?

According to personal finance writer Scott Burns, even the wealthy need Social Security. You can read his article on this topic at

Anonymous says:

Interesting comments by Dave and Jimmy.

One thing I’m not understanding in the Aon study is: are people that were making $90k pre-retirement really getting 33% of their post-retirement income from social security? is that right?! Shocking.

Anonymous says:

As Dave mentioned, right off the top you will not have to pay 7% towards SS anymore so, assuming the same lifestyle, 93% can be your baseline when figuring out what you can live on.

Anonymous says:

Here’s how it has worked out for us. When I was working, my disposable income was about 45% of my taxable income:

10% was going into my 401(k)
10% was going into non-qualified investments
7% was going into Social Security
12% was going into my mortgage
16% was going into income taxes.

When I retired, I stopped paying into the 401(k), investments, SS, and mortgage (I paid it off). Reducing my income to keep my standard of living approximately constant cut my income tax by another 10%. So my taxable income early in retirement is about 55% of my pre-retirement income. We still have nice vacations, spoil our grandchildren, and enjoy life, and since we followed the 80% rule, we have more than we need, which has allowed us to support a few charitable causes we like. Social Security supplies about 1/3 of our income needs, and distributions from our IRAs easily provide the other 2/3 using the 4% distribution rule.

Anonymous says:

I think you should count on needing 100% of your pre-retirement income. 80% is too rosy of an estimate. Yu’ll need it for things like traveling and spoiling grandchildren when you’re younger, then exorbitant health costs when you get older.

Anonymous says:

I have no idea how much I am going to need in retirement. If I am healthy, I surely don’t want to be sitting around my house watching TV all day long; I will want to be traveling. I would imagine taking a few nice international trips each year would be expensive (just a wild guess)… so I don’t think I would want less money, but more money.

If I am not healthy, then I will likely have more expenses.

Either way, it looks like more money is necessary unless you want to veg out in front of the stupid box.