Putting a portion of your salary aside every month into a retirement account isn't exactly easy sometimes, especially with inflation at elevated levels and housing costs up significantly compared to just a few years ago.
It doesn't help that it could be difficult to calculate how much you'll need in retirement, considering that no two retirement plans will look exactly the same.
But there are a few tried-and-tested approaches to coming up with a general amount you'll need. So let's take a look at how much you may want to save to maintain your current standard of living if you're making $30,000 per year.
Consider the 80% rule
Most financial experts say that you'll spend about 80% of your pre-retirement income to maintain the same standard of living in retirement. It's not an exact science, of course, but it's a good starting point to estimate the amount you'll need.
So, if your annual income is $30,000 right now, then 80% of that is $24,000. This is roughly what you'll spend to maintain a lifestyle similar to the one you have right now.
Deduct what you'll get from Social Security
Most Americans are able to collect Social Security while they're in retirement, so we should factor this into our equation as well. The general rule is that Social Security benefits replace about 40% of pre-retirement income.
With $30,000 in annual income, that means you could receive an estimated $12,000 per year in Social Security payments, without adjusting for inflation. Remember though, that this is a rough estimate. You can use the official Social Security calculator to enter your age, salary, and target retirement year, to get the most accurate estimate for you.
So if we take our previous $24,000 and subtract $12,000 from annual Social Security payments, then we end up with a remaining $12,000 that you'll need each year.
How much you need to save
And finally, if we multiply that $12,000 by 25 (the estimated amount of years you'll be retired), then we come up with a figure of $300,000 needed for retirement savings.
It's worth repeating that this is just a hypothetical estimate and doesn't include inflation-adjusted figures nor does it account for your specific lifestyle.
Start investing as soon as possible
No matter how much money you'll need for retirement, putting money into a retirement account as quickly as possible is always the best strategy.
One good way to do this is to sign up for your company's 401(k) program, if one is offered. And if your company offers contribution matching, make sure to contribute enough to qualify for the maximum match amount so that you can take advantage of free money added to your account.
You may also want to consider opening up an individual retirement account (IRA). You can do this through a stock broker, which will allow you to make your own investment decisions. You'll also be able to choose whether you want a traditional IRA or a Roth IRA. Both have tax advantages, but the Roth IRA will allow you to make your retirement withdrawals tax-free.
These are just estimates
Remember that these are just estimates, and the amount you need in retirement may look very different. But this should give you a few ideas of how you should think about retirement planning and how much you might need to put into an investment account each month.
And remember that the longer your money is in a retirement account, the more potential you give it to grow. Time is your friend when it comes to compounding interest, so the sooner you start saving, the better.
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FAQs
A common rule is the 4% rule, which suggests you need 25 times your annual expenses. So, for $30k/year, you'd need to save $750,000. Adjustments might be needed based on individual circ*mstances.
How long will $800,000 last in retirement? ›
So, with an initial $800k nest egg, you could potentially withdraw between $40k-60k per year over 20 years before completely depleting your retirement savings. Consulting with an experienced financial advisor can provide tailored advice to assess your retirement needs based on your situation.
How much money should I have saved for retirement by the time I m 30? ›
Fast answer: Rule of thumb: Have 1x your annual income saved by age 30, 3x by 40, and so on. See chart below. The sooner you start saving for retirement, the longer you have to take advantage of the power of compound interest.
How long will $600,000 last in retirement? ›
You expect to withdraw 4% each year, starting with a $24,000 withdrawal in Year One. Your money earns a 5% annual rate of return while inflation stays at 2.9%. Based on those numbers, $600,000 would be enough to last you 30 years in retirement. In fact, by age 92 you'd still have over $116,000 in savings.
How much will my Social Security be if I make 30k a year? ›
The general rule is that Social Security benefits replace about 40% of pre-retirement income. With $30,000 in annual income, that means you could receive an estimated $12,000 per year in Social Security payments, without adjusting for inflation.
Can you live on $4,000 a month in retirement? ›
With $800,000 in savings, you can probably cover $4,000 in monthly living costs. However, retirement accounts alone cannot safely sustain that spending for a 25- or 30-year retirement.
How long will $1 million last in retirement? ›
Around the U.S., a $1 million nest egg can cover an average of 18.9 years worth of living expenses, GoBankingRates found. But where you retire can have a profound impact on how far your money goes, ranging from as a little as 10 years in Hawaii to more than than 20 years in more than a dozen states.
What is the average 401k balance at age 65? ›
Average and median 401(k) balances by age
| Age range | Average balance | Median balance |
|---|
| 35-44 | $76,354 | $28,318 |
| 45-54 | $142,069 | $48,301 |
| 55-64 | $207,874 | $71,168 |
| 65+ | $232,710 | $70,620 |
2 more rowsMar 13, 2024
If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.
How many people have $1,000,000 in retirement savings? ›
In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.
There are estimated to be a little over 8 million households in the US with a net worth of $3 million or more.
How long can I retire on $500k plus Social Security? ›
If you retire with $500k in assets, the 4% rule says that you should be able to withdraw $20,000 per year for a 30-year (or longer) retirement. So, if you retire at 60, the money should ideally last through age 90. If 4% sounds too low to you, remember that you'll take an income that increases with inflation.
What is a good monthly retirement income? ›
More? Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. This means that, if you earn $100,000 per year, you'd aim for at least $80,000 of income (in today's dollars) in retirement.
Is it better to collect Social Security at 62 or 67? ›
In terms of lifetime benefit optimization, age 67 was the second highest at around 10%. Between ages 62 and 67, the latter gave retired workers a higher statistical probability of maximizing their lifetime income from Social Security.
Is Social Security based on last 3 years of work? ›
Social Security bases your retirement benefits on your lifetime earnings. We adjust or “index” your actual earnings to account for changes in average wages since the year the earnings were received. Then we calculate your average indexed monthly earnings from your highest 35 years of earnings.
Can you get $3000 a month in Social Security? ›
For example, if you get $36,000 a year ($3,000 a month) from Social Security and have no other income, your combined income is $36,000 divided by 2, or $18,000. None of your benefits are taxable if your income is below $25,000 for a single filer or $32,000 for joint filers.
How many people have $1000000 for retirement? ›
In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.
Can I retire at 65 with 750k? ›
Can you retire at 65 with $750,000 in a Roth IRA and $1,800 in monthly Social Security? Based on median incomes and the 10x rule, most people will need about $740,000 to finance a secure retirement. So in theory, a $750,000 Roth IRA and $1,800 in Social Security benefits will be enough for many individuals to retire.
How much does an 800k annuity pay? ›
Retire At Age 65 With $800k
| Annuity Purchase Date | Annual Income At 65 |
|---|
| Age 40 | $146,168 |
| Age 45 | $140,334 |
| Age 50 | $139,005 |
| Age 55 | $115,123 |
With $100,000 you should budget for a retirement income of around $5,000 to $8,000 on top of Social Security, depending on how you have invested your money. Much more than this will likely cause you to run out of money within 25 – 30 years, which is potentially within the lifespan of the average retiree.
