At first, it felt too early in the life of this site to write about retirement savings—but today, it suddenly felt like the obvious topic. Why? Because saving and building net worth makes more sense when there’s an end goal in sight.
Retirement might not be your only reason to build good financial habits, but let’s be honest—it’s one of the big ones. I’m 59 and think about retirement a few times a day. If you’re fresh out of college, it probably doesn’t even cross your mind. That’s okay. This post is meant to be a high-level introduction to a topic that, frankly, feels complicated for a lot of people.
Why Retirement Planning Feels Complicated
- Success in retirement looks different for everyone. Some dream of world travel. Others are happy with a cup of coffee and a rocking chair.
- Success in retirement will be different for everyone. Some will want to travel. Some will be happy with a cup of coffee and a rocking chair.
- Inflation is hard to predict. How much will things cost when you want to retire.
- Social Security – I have always factored in my social security income when looking at retirement but there is a lot of uncertainty as to whether social security will continue in the future.
- Healthcare – will you be healthy or will illness knock on your door. My Dad was close to retirement when diagnosed with leukemia which put a financial twist on what was possible.
- How long will you live.
- Analysis paralysis: there is so much information out there on this topic. It can be so overwhelming that you gridlock and never start to prepare for retirement.
All of this being said, the topic is important. You will have worked for years and want some freedom to enjoy the fruits of your labor and do what you want with some peace of mind. That might be traveling the world. That might be volunteering at your church or the charity of your choice. Retirement is the final destination of your financial planning journey.
3 Simple Rules to Estimate What You Need
1. The 4% Rule (a.k.a. Rule of 25)
This popular rule says you can withdraw 4% of your retirement savings annually and still have a good chance of not running out of money for 30 years.
The key to this is estimating how much your expenses will be in retirement. This is the difficult part depending on how you plan to spend your time. You cannot simply look at what you spend today. Will you still have a mortgage payment (the goal is not to have one), do you want to travel every month, will you have a second home. Over time this answer will change so you need to constantly review this calculation.
Let’s say you expect to spend $75,000 per year in retirement. Using the 4% rule:
$75,000 ÷ 0.04 = $1,875,000 estimated retirement savings.
It’s not an exact science, but it’s a great place to start. Here is an article from Charles Schwab that will give you a more complicated look at the 4% Rule
2. The Income Replacement Rule
This rule says you’ll need about 75% of your pre-retirement income to maintain your lifestyle in retirement. The focus is on income versus expenses.
Let’s say you earn $125,000 a year right before retiring:
75% of $125,000 = $93,750 needed per year
You now have to factor other sources of income. To keep it simple, let’s assume Social Security provides $2,750/month or $33,000/year. Subtracting this from the needed income above ($93,750 less $33,000 leaves a gap of $60,750 your savings need to cover.
Using the 4% rule again:
$60,750 ÷ 0.04 = $1,518,750 of estimated retirement savings.
Here is more complicated discussion from T Rowe Price regarding the Income Replacement Rule
3. Age Benchmarks
This method uses age-based targets for retirement savings, based on a multiple of your annual salary:
– Age 30 → 1x salary
– Age 40 → 3x salary
– Age 50 → 6x salary
– Age 60 → 8x salary
– Age 67 → 10x salary
For example, if your salary is $80,000 at age 50, you should aim to have $480,000 saved by then.
Note: This applies to retirement savings—not general savings or emergency funds.
Final Thoughts
All three of these rules are general guidelines—not perfect formulas. Everyone’s retirement path is unique, and your ideal number depends on many variables: health, housing, lifestyle, and market returns.
Most financial advisors use more advanced calculators. I use UBS’s tools, which let me account for college costs, housing changes, lifestyle choices, and more.
But you don’t need anything fancy to get started. The important thing is that you start. Whether you’re 25 or 55, defining your retirement number is one of the most empowering steps you can take.
Your magic number is waiting—and every dollar you save gets you closer.
Cheers. Money and inspiration, one step at a time.
