How much to save for retirement?
- Ben Clarke
- Jan 7
- 2 min read
Not personalized financial advice - your money, your choice
$609,230.
That’s the current average of how much people have saved for retirement by the time they are 65-74.
The median, however, looks more bleak with an amount of just $200,000.
Many people never figure out how much they will need in retirement.
Luckily, there is an easy way to work back into how much to save for retirement. The good thing is that we can work out how much to save for retirement based on our current/anticipated spending habits.
Imagine that I spend $660 per month ($8,000/yr) on property taxes for my home, and I spend around $540 on eating out and another $500 on groceries.
This is ~$1,500 per month in fixed expenses or about $18,000 per year. We’re assuming that I own my home, it's in Seattle, and is roughly worth the median home value of $850,000-899,000.
I also love a good vacation. I will spend ~$15,000 per year on vacations as well as another $12,000 on bills, gifts, and discretionary spending (Netflix is expensive).
That totals about $45,000 per year in spending.
If we used the ever-popular 4% rule, we would be able to figure out that using this formula:
So the amount we would need to invest would be = $45,000 / 4%. This would amount to approximately $1.125 million.
For many people, however, this won’t be enough.
When we consider adding expenses for things like additional cars or sports equipment, many people will want to allocate more than 4% of their retirement funds.
The 4% rule also assumes that you’d be withdrawing for 30 years and that the stock and bond markets would continue on their trajectories.
I think I may survive 40 years between retirement and death, so a 3-3.5% withdrawal rate may be even safer.
3.5% would require ~$1.286M and for a 3% withdrawal rate, it’d be more like $1.5M.
For many Americans, this will either be very hard or seem completely impossible. BUT the sooner one starts, the easier this can be.
Compound interest is powerful and works best when combined with as much time as possible.
If we assume a retirement age of 65 and an investment starting age of 20, 30, 40, or 50, to reach $1M by retirement, saving & investing enough does get harder.
Starting Age | Years to Retirement (Age 65) | Total Time for Compounding | Monthly Savings Needed |
20 | 45 Years | Longest | $325 |
30 | 35 Years | Very Long | $485 |
40 | 25 Years | Moderate | $1,140 |
50 | 15 Years | Shortest | $3,070 |
This doesn’t include whether I was renting an apartment or a unit in an assisted living facility.
Both of those scenarios would require more money for retirement, closer to $1.8-2M to cover the increased cost of living.
If this helped demystify how to think about saving and investing for retirement, consider subscribing to my YouTube channel or newsletter! Future-you may thank you.
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