Retirement Planning: How Much Should You Save?

The average American has $141,542 saved for retirement according to Northwestern Mutual's 2024 study. Sounds reasonable until you realize the average retirement lasts 20-30 years and costs $1.2-2 million depending on lifestyle.

Most people are dramatically undersaving. A retirement calculator helps bridge the gap between "I'm saving something" and "I'm saving enough."

The Retirement Savings Reality Check

Ask yourself: What's my retirement number?

Most people can't answer. They're saving "as much as possible" or "whatever the company matches" without knowing if it's remotely adequate.

The 25x Rule: You need 25 times your annual retirement expenses saved by retirement. Want to spend $60,000 annually in retirement? You need $1.5 million saved.

This assumes a 4% safe withdrawal rate—the amount you can withdraw annually without depleting your nest egg over 30 years.

The 10x Rule: By retirement age (65-67), you should have 10 times your final working year salary saved. Earn $100,000 at retirement? You need $1 million saved.

This rule of thumb accounts for Social Security covering roughly 40% of pre-retirement income for middle-income earners.

Age-Based Savings Milestones

Financial planners recommend these age-based targets as multiples of your annual salary:

Age 30: 1x annual salary saved

• Earning $50,000: Should have $50,000 saved
• Example: $500/month from age 22 at 7% returns = $52,400

Age 35: 2x annual salary

• Earning $60,000: Should have $120,000 saved
• Example: $650/month from age 22 at 7% returns = $121,800

Age 40: 3x annual salary

• Earning $70,000: Should have $210,000 saved
• Example: $700/month from age 22 at 7% returns = $216,300

Age 45: 4x annual salary

• Earning $80,000: Should have $320,000 saved
• Example: $850/month from age 22 at 7% returns = $330,100

Age 50: 6x annual salary

• Earning $90,000: Should have $540,000 saved
• Example: $1,000/month from age 22 at 7% returns = $556,700

Age 55: 7x annual salary

• Earning $95,000: Should have $665,000 saved

Age 60: 8x annual salary

• Earning $100,000: Should have $800,000 saved

Age 67: 10x annual salary

• Earning $100,000: Should have $1,000,000 saved

Behind at your age? Don't panic—we'll cover catch-up strategies.

Calculating Your Required Monthly Contribution

Retirement calculators reverse-engineer how much you need to save monthly to hit your target.

Example: 30-Year-Old Starting from Zero

Goal: $1 million by age 67 (37 years away) Expected return: 7% annually (historical stock market average) Required monthly contribution: $587

That's it. $587 monthly from age 30 to 67 gets you to $1 million.

Start at 25 instead: $402/month Start at 35 instead: $937/month Start at 40 instead: $1,375/month Start at 45 instead: $2,125/month

Every 5 years you delay doubles or triples the required monthly contribution. This is why starting early is critical.

The 401(k) Company Match: Free Money

If your employer offers a 401(k) match, contribute at least enough to get the full match. This is an immediate 50-100% return on your money.

Example: 6% Match

Salary: $75,000 You contribute: 6% = $4,500 annually Company contributes: 6% = $4,500 annually Total annual retirement saving: $9,000

That company match is $4,500 in free money. Over 30 years at 7% returns, that $4,500 annual match grows to $437,000.

Not capturing the full match is leaving hundreds of thousands of dollars on the table.

The Retirement Account Priority List

Save in this order for optimal tax benefits and growth:

Priority 1: 401(k) to Company Match Get the full match—it's a guaranteed return.

Priority 2: High-Interest Debt Payoff Eliminate debt above 8% interest before additional retirement saving.

Priority 3: Max Out Roth IRA $7,000 annual limit ($8,000 if 50+) Tax-free growth and withdrawals in retirement.

Priority 4: Max Out 401(k) $23,000 annual limit ($30,500 if 50+) Tax-deferred growth reduces current taxable income.

Priority 5: HSA (if eligible) $4,150 individual / $8,300 family limit Triple tax-advantaged: deductible contributions, tax-free growth, tax-free withdrawals for healthcare.

Priority 6: Taxable Brokerage Account After maxing tax-advantaged accounts, invest extra in index funds.

Roth vs. Traditional: Which Is Better?

Traditional 401(k) / IRA:

• Contributions reduce taxable income now
• Pay taxes on withdrawals in retirement
• Best if you're in a higher tax bracket now than you'll be in retirement

Roth 401(k) / IRA:

• Contributions with after-tax money
• Tax-free withdrawals in retirement
• Best if you're in a lower tax bracket now or expect higher rates in retirement

General Guidance:

• Age 20s-30s, moderate income: Roth (you're likely in lower bracket)
• Age 40s-50s, high income: Traditional (you're likely in peak earning years)
• Age 50s+ catching up: Mix of both for tax diversification

Most financial planners recommend having both Roth and Traditional accounts for flexibility in retirement.

Catch-Up Contributions: You're Not Too Late

Behind on retirement savings? The IRS allows catch-up contributions starting at age 50:

401(k) Catch-Up: Standard limit: $23,000 Age 50+ limit: $30,500 Extra $7,500 annually

IRA Catch-Up: Standard limit: $7,000 Age 50+ limit: $8,000 Extra $1,000 annually

Total catch-up potential: $8,500 more annually at age 50+

Over 15 years (age 50-65) at 7% returns, that extra $8,500 annually becomes $320,000.

Real Catch-Up Strategy: 45-Year-Old Starting Late

Current Situation:

• Age: 45
• Current retirement savings: $80,000
• Current salary: $85,000
• Retirement goal: $1 million by 67 (22 years)

Calculator Analysis:

• Current savings will grow to $343,000 by 67 (no additional contributions)
• Need an additional $657,000
• Required monthly contribution: $1,220

Reality Check: $1,220/month is 17% of gross income—aggressive but achievable.

Catch-Up Strategy:

1. Contribute 12% ($850/month) to 401(k) to get full 6% company match
2. Company match adds $425/month ($5,100 annually)
3. Total monthly saving: $1,275
4. Projected balance at 67: $1,087,000

This exceeds the goal with the help of the company match.

Social Security: Don't Count On It (But Include It)

Social Security will likely still exist but may be reduced. Current full retirement age is 67, with reduced benefits available at 62.

Average Monthly Benefits (2024):

• Age 62: $2,364 (30% reduction)
• Age 67: $3,377 (full benefit)
• Age 70: $4,194 (24% increase)

For planning purposes:

• Conservative: Assume 70% of projected benefits
• Moderate: Assume 80% of projected benefits  
• Optimistic: Assume 100% of projected benefits

Check your Social Security statement at ssa.gov for personalized projections.

Healthcare Costs: The Hidden Retirement Expense

Fidelity estimates a 65-year-old couple retiring in 2024 needs $315,000 saved for healthcare costs throughout retirement.

Medicare Coverage (starts at 65):

• Part A (Hospital): Usually free
• Part B (Doctor visits): $174.70/month (2024)
• Part D (Prescriptions): $5-$100/month
• Medigap or Advantage: $100-$400/month
• Total: $300-$700/month per person

Before 65, you'll need private insurance or COBRA. Budget $500-$1,500/month per person if retiring before Medicare eligibility.

Include healthcare as a separate line item in retirement planning calculators.

The 4% Safe Withdrawal Rate

Once retired, how much can you withdraw annually without running out of money?

The 4% rule says you can withdraw 4% of your starting balance annually, adjusted for inflation, with a high probability of your money lasting 30+ years.

$1 Million Portfolio: Year 1: Withdraw $40,000 Year 2: Withdraw $40,800 (adjusted for 2% inflation) Year 3: Withdraw $41,616 (adjusted for 2% inflation)

This assumes a 60/40 stock/bond portfolio rebalanced annually.

More Conservative (3% rule): Better for early retirement or longer time horizons More Aggressive (5% rule): Acceptable for shorter time horizons or higher risk tolerance

Required Minimum Distributions (RMDs)

At age 73, the IRS forces you to withdraw minimum amounts from Traditional 401(k) and IRA accounts:

RMD Calculation: Account balance ÷ IRS life expectancy factor

At age 73 with $500,000 in traditional accounts: $500,000 ÷ 26.5 (IRS factor) = $18,868 required withdrawal

This becomes taxable income. Roth accounts have no RMDs during your lifetime, making them attractive for legacy planning.

Frequently Asked Questions

How much should I have saved for retirement by age 30? Target 1x your annual salary. If you earn $50,000, aim for $50,000 saved. This requires saving roughly $500-$700 monthly starting in your early 20s.

Is $1 million enough to retire? Using the 4% rule, $1 million provides $40,000 annual income. Add Social Security ($25,000-$40,000 annually for couples), and you have $65,000-$80,000 total. This is comfortable for many but not luxurious.

What if I'm 50 and have nothing saved? Don't panic. Max out 401(k) including catch-up contributions ($30,500 annually) with company match. This could generate $500,000-$700,000 by 67. Combine with Social Security and consider working part-time in early retirement.

Should I pay off my mortgage before retiring? Generally yes, especially if your mortgage rate exceeds 5%. Eliminating the payment reduces required retirement income by $1,500-$2,500 monthly, meaning you need $450,000-$750,000 less saved.

Can I retire at 55? Yes, but you need more saved. A 55-year-old retirement lasts 30-40 years instead of 20-30, requiring 30-35x annual expenses instead of 25x. You'll also need private health insurance until Medicare at 65.

Ready to plan your retirement? Use our Retirement Savings Calculator to create your personalized plan. Also check our Compound Interest Calculator to see how your money will grow, and explore our Social Security Calculator to factor in your estimated benefits.