The number depends on your spending, not a national average

There is no single retirement number that works for all Americans because retirement costs are built on what you personally spend, not on what others spend. A person who owns a home outright and has no debt needs far less than someone with a mortgage and medical expenses. Someone who travels extensively needs more than someone who stays local. The only useful retirement number is the one based on your own life.

Financial planners often use a rule of thumb: you will need 70 to 80 percent of your pre-retirement income each year. So if you earned $60,000 a year before retirement, you might plan for $42,000 to $48,000 annually in retirement. This works as a starting point because some expenses—commuting, work clothes, payroll taxes—disappear when you stop working. But this rule is a rough estimate, not a prediction of what you will actually need.

Key Takeaways

  • Your retirement number depends on what you spend each month, not on national averages or what others have saved.
  • A common planning rule suggests saving enough to replace 70 to 80 percent of your current income, but your actual needs may be higher or lower.
  • The 4 percent rule—withdrawing 4 percent of your savings annually—is one way to estimate how much total savings you need, but it assumes a 30-year retirement and market returns that vary year to year.
  • Healthcare costs in retirement are often underestimated and can shift your number significantly upward.
  • Social Security, pensions, and other income sources reduce the amount you need to have saved in your own accounts.

How to calculate your own retirement number

Start by listing what you actually spend in a typical month right now. Include rent or mortgage, utilities, food, insurance, transportation, medical care, and anything else you pay for. Multiply that by 12 to get your annual spending. This is your baseline.

Next, think about what will change. If you have a mortgage, will it be paid off by retirement? If you have student loans, will they be gone? Will you travel more, or less? Will you have grandchildren to help support? Will you need to pay for care as you age? Add or subtract from your baseline based on these changes. The result is your estimated annual retirement spending.

Then subtract any income you will receive that is not from your own savings. This includes Social Security (which you can estimate at ssa.gov by creating a my Social Security account), any pension from a former employer, rental income, or part-time work you plan to do in retirement. What remains is the amount you need to withdraw from your own savings each year.

Using the 4 percent rule to find your savings target

Once you know your annual withdrawal need, the 4 percent rule offers a way to estimate your total savings goal. The rule says you can safely withdraw 4 percent of your retirement savings in the first year of retirement, then adjust that amount for inflation each year after. So if you need $40,000 per year from your savings, you would divide by 0.04 to get $1,000,000.

This rule assumes you will be retired for about 30 years and that your savings are invested in a mix of stocks and bonds that historically returns roughly 7 percent annually. It also assumes you can tolerate some years when your account balance drops because market returns are lower. The rule is not a may provide—some retirees will run out of money, and others will have far more than they need—but it is a reasonable planning tool used by many financial advisors.

The rule breaks down if your retirement will be much shorter or much longer than 30 years, or if you cannot tolerate investment risk. Someone retiring at 55 with a family history of longevity might need to plan more conservatively. Someone retiring at 75 with a shorter expected lifespan might need less.

Why healthcare costs change the calculation

Healthcare is the largest expense that most people underestimate in retirement. Medicare covers hospital and doctor visits for people 65 and older, but it does not cover dental, vision, or hearing aids. It also does not cover long-term care—nursing homes, assisted living, or in-home care—which can cost $4,000 to $8,000 per month depending on where you live and what level of care you need.

If you retire before 65, you will need to buy your own health insurance until Medicare begins, which is a significant monthly cost. If you retire after 65 but have not yet claimed Social Security, you still need to enroll in Medicare or pay a penalty later.

A common estimate is to set aside $300,000 to $500,000 for healthcare costs in retirement, but this varies widely based on your health, your family history, and whether you live in a state with high or low medical costs. If you have a chronic condition or a family history of serious illness, your number may be higher.

How Social Security affects your number

Social Security replaces a portion of your pre-retirement income, and the amount depends on how much you earned and when you claim it. If you claim at 62, your monthly payment is smaller than if you wait until 67 or 70. Most people claim between 62 and 70, and the longer you wait, the larger your monthly check.

You can estimate your Social Security benefit by logging into your my Social Security account at ssa.gov. The site shows your earnings history and projects what you will receive at different claiming ages. This number should be subtracted from your annual spending need before you calculate how much you need to save.

If you are married, you may have options to claim on your spouse's record or to coordinate your claiming ages to maximize household benefits. If you are divorced, you may be able to claim on an ex-spouse's record if the marriage lasted at least 10 years. These strategies can significantly change your retirement number.

Pensions and other may provide income

If you have a pension from a former employer—a monthly payment for life based on your years of service and salary—that income reduces the amount you need to save. A pension of $2,000 per month is $24,000 per year that you do not need to withdraw from your own accounts.

Some pensions offer a choice: take a monthly payment for life, or take a lump sum now. If you choose the lump sum, you become responsible for making that money last, and your retirement number increases because you now need to manage that account yourself. If you choose the monthly payment, your income is may provide but you lose access to the lump sum if you die early.

Other sources of may provide income include rental property (if you own real estate and rent it out), annuities (insurance products that pay you a fixed amount each month), or part-time work you plan to do in retirement. Each of these reduces the amount you need to have saved.

Common mistakes in retirement planning

One mistake is assuming you will spend less in early retirement than you actually do. Many people travel more, pursue hobbies, or help family members in their first years of retirement, then spend less as they age. Planning for a flat spending level across 30 years often underestimates early-retirement costs.

Another mistake is not accounting for inflation. A dollar today is worth more than a dollar in 20 years. If you plan for $50,000 annual spending today, you will need roughly $100,000 annual spending in 20 years if inflation averages 3.5 percent per year. The 4 percent rule accounts for this by allowing you to increase your withdrawals each year, but only if your savings are large enough to support it.

A third mistake is underestimating longevity. If you plan for a 25-year retirement but live 35 years, you will run out of money. Planning conservatively—assuming you will live into your mid-90s—is safer than assuming an average lifespan.

Frequently Asked Questions

What is the average amount Americans have saved for retirement?

The median retirement savings for households near retirement age varies widely by income level and is not a useful target for your own planning. Some households have substantial savings; others have very little. Your number should be based on your spending and your income sources, not on what others have saved.

Does my retirement number need to account for inflation?

Yes. The 4 percent rule assumes you will increase your withdrawals each year to keep up with inflation, so your savings need to be large enough to support that. If you plan for $50,000 annual spending today without accounting for inflation, you will have less purchasing power each year as prices rise.

What if I retire earlier than 65?

Your number increases because you need to cover more years of retirement and because you will pay for your own health insurance until Medicare begins at 65. You also cannot claim Social Security until 62 at the earliest, and claiming before your full retirement age (66 to 67 for most people) results in a permanently lower monthly benefit.

Should I use the 4 percent rule if I have a pension?

The 4 percent rule applies to the portion of your retirement spending that comes from your own savings. If a pension covers half your spending, you only need to save enough to cover the other half using the 4 percent rule. Subtract may provide income first, then calculate your savings goal.

What if I am not sure how much I will spend in retirement?

Track your spending for three to six months now to get a realistic picture. Then adjust for changes you expect—paid-off mortgage, no commuting costs, more travel—to estimate retirement spending. This is more accurate than guessing or using a national average.