People want to know how much money they need to have saved to retire.  Is it the same amount for each person?  Is there a standardized rule to make this simple? Almost half of those surveyed (48%) say they have tried to figure out how much they would need.  4 in 10 estimated that number to be more than 1 million dollars (2020 Retirement Confidence Survey).

The answer should not be limited to one set rule for every person.  

There are a few factors to consider that can make that number different for each person.   How many years between now and retirement, how many years of retirement are we planning for, income needs, Social Security amount, pensions, and spending goals affect the answer.

A better way to look at it would be to determine your spending needs versus wants during retirement.  Though we can never predict the future needs to the penny, a little thoughtfulness goes a long way.  You're not forecasting your exact spending for five, ten, or twenty years into the future.   You're merely trying to get close.

Ask yourself what you want to be doing and with whom you would like to be doing them?

Try to think beyond basic needs.  Venture into thinking about what you might need to authentically live out your dreams in retirement.  To us, as our tag line says, it succinctly,  "Plan for the future, prosper in the present."  Plan to enjoy your money.

Common Rules:

1. The % of your income rule.

This rule teaches that you can shoot for a percentage of your current income.  For example, 75% of your current income would be a target for when you are no longer working.  If you are earning $200,000 as a household, you will target $150,000 in retirement income.  

Though we appreciate simplicity, there are many reasons why this cannot be a straightforward rule.  

First, each person is saving different amounts of that $200,000 while working.  Each person is also using differing amounts of that active income to retire debt.  Not to mention that not everyone will plan to be free of all debt before retirement.

This rule cannot be hard and fast because when we retire, there's an old saying that says “every day is Saturday."  We tend to spend more when we aren't distracted by work.  You have different goals than every other person.  Some of us are paying down RV’s over the first few years of retirement.  Others are doing unusual things like moving to foreign countries for a few years!  

2. The safe withdrawal rule.

A well-known rule that developed over the years has become deemed as the safe withdrawal rate rule.  Based on a study conducted by William Bengen in 1994.  The investigation resulted in making 4% of the total, the distribution amount from savings that would allow a person to create income from their total savings and not run out over twenty plus years.

For every $1 million, a person would withdraw $40,000 each year.  

There are many challenges with using the 4% distribution rate as a rule.   I write about those in my book "A Wealth of Wisdom."

3. Twenty-five x current income rule.

Some people say you need 25x your income to retire.  For example, if you want to spend $100,000 from your savings, then you'd need 100,000 x 25 = $2.5 million to retire.  $2.5 million would be your magic number.  However, this is just another way to frame the 4% rule.  $2.5 million x 1.04 = $100,000.

Instead of focusing on the magic number, we recommend starting with a spending plan.  Get an idea of what you spend.  Focusing on what you spend is key because there are other ways to increase retirement income.  

One way is to increase your Social Security benefits.

Another way is to redirect attention to reducing future taxable money using a Roth Conversion strategy.  Less tax means more spending.

Having a magic number in mind can be a simple way to plan for retirement income.  But, the number can be misleading due to other considerations.  Online calculators can give you a start in the right direction, but they can't figure out the different complexities and opportunities each person may have.

Everyone should begin their plan understanding what they want to spend. We've created an easy worksheet to help you along. You can find that retirement spending sheet here.

*2020 Retirement Confidence Survey, (n.d.). RetrievedJanuary 18, 2021, From:

Retirement Income