Retirement saving: How much money is enough?

An illustrated image of a stack of coins, a clock, and a person

(Image credit: Nuthawut Somsuk/Getty images)

published 5 May 2023

Kiplinger logo

We all know we need to save for retirement, but we might not know exactly how much to set aside. It's easier to meet your retirement-savings goal if you're aiming with intention for something concrete, rather than just passively diverting a percentage of your paycheck to your 401(k) and other retirement accounts.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

The 75 percent rule "is based on reducing your spending at retirement by 5 percent and saving 8 percent of your gross household income during your working years," according to Kiplinger. This is roughly the average amount people save in their retirement accounts each year. Why can you assume your spending will be lower after you retire? Not only is this a typical pattern, but you'll also no longer be diverting a portion of your income towards retirement savings, and your taxes will most likely be lower than before, Kiplinger notes.

While your retirement goals should be tailored to your individual situation, it can be helpful to get a sense of how much other people are spending during their golden years. Households led by someone 65 or older spent an average of $45,270 in 2020, according to data from the Bureau of Labor Statistics reported by U.S. News & World Report. There were plenty of households that spent far less or far more than that average — 2.1 percent spent less than $10,000, while 6.7 percent spent $100,000 or more.

However, beware relying too heavily on any one income source in retirement, Kiplinger cautions. There should be "three main components to a financial plan for retirement: the foundation, the walls, and the roof," the financial website adds. The foundation is "money that needs to be secure and produce predictable income that will last for your lifetime," such as income from "Social Security, pensions and rental properties." Meanwhile, the walls are "stable, relatively safe investments with minimal risk that add security for the retiree," like certificates of deposit, bonds, and fixed annuities.

Get familiar with your current spending habits. One issue for many people as they start planning for retirement is not knowing how much they're currently spending each year, Kiplinger says, adding that "not knowing that number or planning for it can be the difference between someone having a great retirement and someone running out of money." Pull out your bank statements from the last 12 months and add up the withdrawal amounts.

Maximize Social Security income. Social Security benefits are "a foundation for your retirement income planning," which is why it's so important to make the most of them, Kiplinger says. One strategy is to delay taking Social Security, which can increase monthly checks later. Social Security rewards you for pushing back benefits with delayed retirement credits each month up until age 70, Kiplinger explains, which means those delays "add 8 percent per year for every year you wait."

Explore More

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.