“Saving for Retirement: How Much is Enough?”


“Am I saving enough for my retirement?” “Is my retirement nest egg sufficient?” Chances are, these haunting questions have crossed your mind at least once during your financial life. Fear not, as by the end of this post, some clarity should be provided, guiding you towards your retirement goals and a comfortable retirement lifestyle.

Estimating retirement costs:

Financial planners widely recommend that your annual retirement income should ideally be around 70-80% of your preretirement income. To illustrate, if your current salary is $100,000, your annual retirement income should be $70,000-$80,000. This rule of thumb considers that some of your current expenses, like mortgage payments and student loans, may be paid off by the time you retire.

However, each individual’s retirement needs vary. For example, a retiree who plans to travel extensively will need more retirement money compared to someone content with a stay-at-home lifestyle. It’s crucial to create a retirement budget, factoring in all expected expenses in retirement, from annual expenses such as living costs, to one-off costs like potential long-term care.

Consider inflation:

While planning for retirement, the inflation rate is an essential aspect to reckon with. Historical inflation rules suggest an annual inflation rate of around 2-3%. If you’re planning a 30-year retirement, the cost of goods and services could potentially double. Simultaneously, medical costs, healthcare costs, and housing costs, among others, shouldn’t be overlooked, as they typically rise faster than general inflation.

Calculating retirement savings:

Retirement calculators offer a good starting point to question “how much is enough?” They consider various factors such as your current savings, annual salary, savings rate, and expected retirement age, providing a ballpark figure for your retirement savings goal. For instance, Gen Zers and millennials who start making monthly savings with their very first paycheck are more likely to achieve their retirement goals than those starting late.

Exploring various sources of income:

Another key aspect of retirement planning is to identify your sources of retirement income, such as:

• Social Security: This can typically provide about 40-60% of your preretirement income. The amount depends on your earnings history and at what age you start taking benefits.

• Retirement Accounts: This consists of money accumulated through your employer-sponsored retirement plans or individual retirement accounts, which can be a significant source of income.

• Other income sources: These can include rental income or part-time work during retirement.

Investments and Returns:

In the chase for a comfortable retirement, investments can be a game-changer. A financial advisor can help to craft an investment strategy aligned with your comfort level of market risk, potential returns, and overall retirement goals. You should also take the advantage of employer matches in your workplace retirement plan as it’s essentially free money.

As an investor, you might be tempted to look for hypothetical investors A or B success stories and try to mirror them. But each individual’s investment objectives, tolerance for risk, and financial lives are unique. Investment performance depends largely on market trends; hence a layman might find it challenging to navigate.

However, when assuming a 6 – 7% average annual return on your investments, you can double your money approximately every 10-12 years. But remember, these are just broad estimates.

Don’t forget Medical Care:

One of the biggest expenses retirees face is the cost of medical care. Even with Medicare, out-of-pocket health care costs can be significant.  Investing in a health savings account (HSA) during your working years can help cover these costs during retirement.

To conclude, as you can see from this rather brief overview of planning for retirement, many factors are in play – and unfortunately, there is no perfect method. Achievable benchmarks and savings benchmark ranges should be taken as guides rather than rules. 

Most importantly, keep in mind that it’s never too late to begin! The key is not to panic but to plan. Consult a trusted financial advisor, consider using a retirement calculator, and re-evaluate your financial decisions periodically. You don’t need to be a retirement expert to achieve a comfortable retirement. With correct planning and advice, you can prepare for the retirement experience you desire.

Updated on August 8th, 2023
by Kelvin Lee

I’m an experienced banking professional specializing in stopping financial crimes like money laundering.

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