How much do I need to save for retirement?

Key Points

  • You might need 80 percent of your pre-retirement income each year to maintain your standard of living in retirement.
  • Your retirement age, lifestyle choices and retirement expenses all affect how much money you need to save.
  • Your retirement income may include your employer-based plan, IRAs, Social Security, pensions and personal savings and investments.

Many people have a better sense of when they want to retire than how much they need to save for retirement. The actual amount you need for retirement depends on several variables including your projected standard of living and expenses, how long your retirement might last, and inflation. To cover these retirement needs, you may rely on a combination of savings, investment growth, Social Security and pensions.

In the simplest terms, how much to save for retirement is the difference between how much money you need to live in retirement and how much you expect to have from your savings and other retirement income sources, given your current situation. Arriving at that figure is far from simple, however.

Here are seven questions to consider as you think about your retirement savings goals. An Ameriprise advisor can help with personalized advice for your unique situation.

1. How much income will you need each year during retirement?

You can generally plan on needing 80 percent of your pre-retirement income each year of your retirement.1 When you are far from retirement, it can be hard to project how your income might change over the years. It's ok if your income estimate is just an educated guess. It still gives you a place to start.

To get an idea of how much you might need to save per year in retirement, take a look at your future career goals, your retirement lifestyle, and your retirement expenses, including health care. Make sure to revisit your goals and projections at least annually. The closer you get to retirement, the more accurate your income estimate will need to be.

2. How much have you already saved for retirement?

Track down and add up your retirement savings, including your employer-sponsored plan (such as a 401(k) or 403(b)), traditional and Roth IRAs, personal savings and other investments. If finding all your assets is difficult, consider consolidating accounts or rolling over to an IRA to help you keep organized. If you don't have much saved, it's never too late to start a saving strategy.

Ideally, your retirement assets will grow from year to year. It's critical that you continue to invest even in a down market. Keeping the amount you invest consistent throughout natural market cycles, a strategy known as dollar-cost averaging, enables you to buy more shares when the market is down and should result in greater assets once the market goes back up.

Dollar-cost averaging does not assure a profit or protect against loss. This type of strategy involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue purchases through periods of low markets.

3. How long will you be in retirement?

It's always better to plan for a long retirement than a short retirement so that you don't run out of money. Depending on your retirement age, you could be fortunate to live in retirement for 30 years or more.

4. What about Social Security?

The amount of Social Security benefits you receive will vary depending on your retirement age.

If you include Social Security income in your retirement planning, refer to your Social Security benefit statement for the amount of your benefit. You may also wish to estimate how much retirement savings you need without Social Security.

5. Do you have a pension plan?

If you have a pension, you can find out how much you can expect to receive by contacting your HR department. A pension benefit should be considered as you calculate how much you will need to save for retirement.

6. How will your retirement investments perform?

The return on your investment portfolio will depend on market performance and inflation, as well as factors such as your asset allocation and diversification. An Ameriprise advisor can help you make sure that your investments are allocated appropriately for your risk tolerance and for the number of years you have left until retirement. Also remember that you will not stop investing the moment you hit retirement, rather your investments will need to continue to work for you throughout retirement.

7. What if you come up short in your retirement savings?

You still have time. Each month, you should be contributing toward your retirement, ideally with both pre-tax and after-tax contribution dollars. You'll likely need more than one type of savings or investment vehicle. Find out how to maximize your savings.

While there's no easy answer to the question of how much you'll need to retire, it's important to have an idea of where you are headed and how you can get there. An Ameriprise financial advisor can help you evaluate your retirement savings strategy, provide a regular look at how you’re progressing and recommend actions that you may take to keep on track toward retirement.

1 Source: "What Percentage Of Your Income Do You Really Need In Retirement?” DoughRoller, November 2020.
Asset allocation and diversification do not assure a profit or protect against loss.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.