Retirement Planning: How much do I need to save?

piggybank.jpgThis is the second of a four-part article series meant to help you start planning for retirement. This article provides general estimates to help you determine how much you need to save for retirement.

Your retirement savings number

When beginning to plan for retirement, often the first question people ask is: How much do I need to save? Before this can really be answered, you’ll need to do some thoughtful planning about the type of retirement you are envisioning; but, in general, you should expect to have saved enough to generate retirement income of anywhere from 70 percent to 120 percent of your current income. Before your eyes pop out of their sockets, it’s important to keep in mind that how much you need for your retirement savings really depends on your situation. Following are some tools and tips for calculating your retirement savings number.

Estimate your target retirement income

Your target retirement income is the amount of income you’d like to generate each month or year during your retirement. The best way to ballpark this figure is to assume that the discretionary income you have now is what you’ll also need in retirement. To determine your future discretionary income, take your current gross income and deduct any costs you expect to disappear in retirement—such as payroll taxes, mortgage expenses if you expect to have your mortgage paid off by the time you retire, and any other temporary expenses you may be carrying. The result is your target retirement income.

If you plan to increase your lifestyle by traveling more, purchasing a second home, taking classes, and so on, you’ll need to take these extra expenses into consideration and add them in to your target retirement income.

Estimate income you expect to receive during retirement

This includes benefits you may receive from a company pension plan, Social Security, and any other income you are likely to get from other sources, such as part-time employment. The Social Security Administration has online calculators to help you estimate your benefits. If you do have a pension plan, contact the plan’s administrator (typically your HR or Benefits department) to find out how much you can expect to receive when you retire.

Calculate your retirement savings number

Now you can begin to calculate your retirement savings number. First, subtract the income you expect to receive during retirement from your target retirement income. The answer shows how much you need to make up during each retirement year.

To determine how much you need saved on your last day of work, take the number you just calculated and multiple it by 20—or by 25 if you want more of a cushion. (This multiplier is a general estimate that takes into consideration longer life spans and rising inflation. For a multiplier that is more specific to your individual situation, visit the Get a Ballpark E$timate® of Your Retirement Needs worksheet.) This is your estimated retirement savings number—the amount you’ll need to have saved to live a comfortable retirement.

Retirement planning tools


A number of online retirement savings calculators and planning tools are available for your use. Here are just a few:

  • has a number of articles regarding various aspects of retirement planning.
  • Bloomberg offers a retirement calculator that also takes into consideration the amount you’ll continue to invest in your retirement savings until your retirement age. Then, by clicking “View Report,” you can see your retirement savings balance, your withdrawals for each year until the end of your retirement, and when your retirement savings may run out.
  • Choose To Save® offers a number of tools including the Ballpark E$timate® worksheet.
  • provides a variety of resources in its retirement planning guide.
  • contains information about life events that could affect your retirement savings and links to other resources.

Next in this article series, learn some tips for saving for your retirement.

This article contains general information. Individual financial situations are unique; please, consult your financial advisor or tax attorney before utilizing any of the information contained in this article.

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Source: American Savings Education Council, Wall Street Journal, AARP, Financial Readiness Central,,,Bloomberg
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