How much will I need and how much should I save for retirement?

Over the course of my career I would say one of the top ten questions I am asked, if not top five, is; how much do I need to save for retirement? Or phrased another way, what is my magic number? 

The answer to that question is; it depends.

Nobody likes hearing that answer but it is the truth.  Figuring out how much you will need at retirement is a complicated topic and unless we are sitting at a table together I don’t think I can give you a precise number.  But what I hope to accomplish in this guide is get you a number that is probably within the range of what you could need when you retire.  The numbers you are about to see might concern you…retirement is not cheap.  But with a good strategy and the determination to get there you can succeed.

We utilize a 4-Step process for retirement preparation that helps simplify your financial situation down to some basic information.  As I mentioned before, this isn’t going to be an exact number but should be in the ballpark.  As you get closer to retirement you will then be able to fine tune your strategy because you will hopefully have a better idea of what you want to do in retirement, where you plan to live and what your expenses are.  My 4-Step process is this:

  1. How much money will I need to have set aside at retirement that I can then turn into an income stream for retirement?
  2. How much money do I need to save each month to get to that nest egg?
  3. What financial vehicles could I use to work on building that nest egg in a tax-efficient way?
  4. What tactics/investments fit my risk tolerance and time horizon to help me meet my retirement goals?

If you have access to a financial calculator you will be able to get a more precise number for your situation. You will see some charts in the following articles that might get you close to your number but using a financial calculator or an online calculator is going give you a more tailored number for your situation.

Ready to begin?  If yes, please proceed to 

2107619 / DOFU 5-2018

Step 1 – How much money will I need in retirement?

How much money will I need to have set aside at retirement that I can then turn into an income stream for my retirement?

Our first step is determining how much money you will need to have sitting there at retirement, which you can then turn into an income stream for retirement so you hopefully never have to go back to work.  You will be paying yourself not to work!  How great is that?

The chart you will see below is an excel program I created so we could quickly come up with an approximate number using just your current income, years until retirement, what we assume the inflation rate will average per year and how much of your current income you think you will need to replace at retirement.  Many financial and economic experts recommend around 80% of your pre-retirement income should be replaced in retirement.  I will caution you though; I have worked with many people who spent MORE in retirement and many who have spent a lot less.  Use this as a general guide to get you started.

Also, if your income is going to most likely change significantly over time, you will want to account for that as well.  Hypothetically speaking, if you are a medical resident earning $50,000 a year but will be making $350,000 a year in private practice, you will want to use the $350,000 number as that will be the lifestyle you will be accustomed to.  This holds true for any profession where your income will most likely change considerably as time goes on.


“If you want to have a better performance than the crowd, you must do things differently from the crowd.”  –  Sir John Templeton


The way you read this chart is left to right.  Pick a number in the first column that is close to your current income or the income you feel you will most likely be at fairly soon.  In my chart I picked 30 years until retirement and used the long-term historical average for inflation as my theoretical assumption.  I also used a 75% income replacement rate for when you retire.  So if you are making $40,000 a year and have about 30 years until retirement then you will need about $1,456,000 sitting there at retirement.

Assumptions: This final sum of money is expected to produce an income stream for at
least 20 years if you withdrew exactly 5% and took no risk with the funds.  If you put the money in an interest bearing account, it could last longer.  If you choose to
invest it in variable, market based, investments it could last a lot longer or not as
long, depending on market performance.  Each person would want to analyze independentlywhat would be best for them and their assumed life expectancy.

Retirement Next Egg Chart

This hypothetical example is for illustrative purposes only. Not based on any particular investment. Investments will fluctuate and when redeemed, may be worth more or less than originally invested. Figures do not include transaction costs, taxes, or expenses.

If you are making $240,000 a year and have about 30 years until retirement you will need about $8,738,000.  The numbers look so big because the rising costs of goods and services over 30 years will be significant if we average 3% inflation.  Just ask your parents what they paid for their first home or first car and you will quickly realize what affect time has on money.

If you want a custom one for you please feel free to email me at and I can send you one right away.  Just let me know the income you want me to use, how long until you retire, and the inflation and replacement rates you are comfortable using.

After the foregoing, let me hopefully give you some good news.  If you are participating in a 401k or 403b, hopefully your employer provides a match on the dollars you put in.  Even if it’s 1%, every little bit helps you in pursuit of your number.  Also, you may have an employer pension that could contribute to your retirement income in the future, that will help as well.  For those who feel social security will provide something at retirement, you could factor that in as well.  So the number might not be as daunting as you think.


For Step 2, please see the next post…Step 2 – Monthly Savings to Reach Retirement Goals

2107619 / DOFU 5-2018