How much do you (really) need to save for retirement? (2023)

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How much do you (really) need to save for retirement? (1)

Use these insights to help determine whether your retirement plan is on the right track.

Retirement experts have offered various rules of thumb about how much you need to save: somewhere near $1 million, 80% to 90% of your annual pre-retirement income, 12 times your pre-retirement salary. But what's right for you? And how do you know you're on track?

"Because there are so many variables, even the retirement researchers can't agree on a total dollar amount," says Ben Storey, director of Retirement Research & Insights at Bank of America. "What each person needs will vary widely based on a number of factors." These factors include your current age, and the age at which you plan to retire or could be forced to retire due to declining health, the loss of a job, or other circumstances beyond your control; how long you expect to live, based on family history; how much you plan to spend in retirement; and what your sources of retirement income will be.

Will your savings be enough for the retirement income you'll need?

(Video) How Much Money You Need To Save For Retirement

You may be surprised how much — or how little — even generously-sized accounts could potentially provide over the course of a retirement. The examples below illustrate how much a 65-year-old might safely withdraw in the first year of retirement.

Savings value at age 65Annual income from savings*
$300,000How much do you (really) need to save for retirement? (2)$12,060/year
$1,000,000How much do you (really) need to save for retirement? (3)$40,200/year
$1,500,000How much do you (really) need to save for retirement? (4)$60,300/year

* The accumulated investment savings by age 65 could provide an annual retirement income, adjusted for future inflation (in today's dollars), of this amount for a life expectancy of 91 years, if withdrawn at a sustained spending rate of 4.02%.

Source: Bank of America's Chief Investment Office, Portfolio Analytics, "Beyond the 4% rule: Determining sustainable retiree spending rates," January 2021.

Just how big your nest egg should be and how long it might last will depend not only on what you save and invest, but also on how you spend it once you do retire. Here are some of the factors to consider as you determine what your unique savings goal should be.

Base your retirement savings estimate on what you expect to spend

"Having a percentage or dollar amount to give you a rough idea for planning can be helpful, but you can't be focused solely on that," Storey says. "Everybody's lifestyle is different. What they want to do in their retirement years may be very different as well." Rather than rely on a general figure, he suggests trying to create a ballpark annual estimate based on what you live on now and what might change when you retire.

The following chart, based on data from the Employee Benefit Research Institute (EBRI),Footnote1 can give you a rough idea of how your expenses for housing,Footnote2 food, health, transportation, clothing and entertainment may change during retirement to help you decide how much income you might need. If you plan to travel or entertain more — or pursue an expensive hobby — you'll want to think about adding in something for those more flexible, discretionary expenses, too. And keep in mind that you need to consider the potential impact of taxes on the retirement income when determining how much you will need.

How will you spend your retirement dollars?

Here's how older Americans today spend their money.

Ages 50-64Ages 65-74Ages 75 and older

Source: Zahra Ebrahimi, "How Do Retirees' Spending Patterns Change Over Time?" EBRI Issue Brief, no. 492 (Employee Benefit Research Institute, October 3, 2019).

Remember, although some costs — such as health care — may increase in retirement, there may be savings elsewhere. "Researchers have found that once people retire they spend more time shopping carefully and preparing meals at home, for example. Their cost of living for items such as these goes down," Storey says.

(Video) How Much Should You Save for Retirement? | What the Experts Say

Keep in mind all of the income sources that can help cover your expenses

As you explore how much money you might really need in retirement, remember that the amount you decide to save and invest on your own is only one component of your future retirement income.

Most Americans will have Social Security as the backbone of their retirement savings. (Even if benefit payments are reduced in the future, Social Security is not likely to go away.) And don't forget about other sources of income that may be available to you many years from now, including the money in your workplace and personal retirement accounts, pensions, annuities, proceeds from selling your home or business, rental income or an inheritance.

Working in retirement: expectations vs. reality

If you're planning to work in retirement so you can save less today, be realistic about your expectations. The annual Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI)* has consistently found that American workers are far more likely to expect to work in retirement than actually end up doing so.

In EBRI's latest report, 72% of workers planned to work in retirement, compared with just 30% of retirees who say they actually do work for pay today."

* Employee Benefit Research Institute, The 2021 Retirement Confidence Survey Summary Report, April 2021.

Two ways to check on your progress right now

Understanding your post-retirement expenses and income can help you estimate how much you may need to draw from your personal savings each year in retirement. However, it can be tough to turn that goal into a realistic amount to invest today when your goal is decades away. Here are two ways you can check on your progress to see if any changes should be made.

  1. For a quick check of how you're doing today vs. similar savers:
    Just as it can be helpful to see how your heart rate, blood pressure or weight compare with the "norm" when you get your annual physical, now you can assess how your retirement savings stack up against your peers by using the Net Wealth to Income Ratio developed by Merrill.

How much should you be saving for retirement?

(Video) How Much Does a Middle-Class American Need to Save for Retirement?

With findings based on Bank of America's Financial Wellness Tracker — a proprietary assessment that calculates a financial wellness score based on where an employee is today (password required) — consider using the following savings multiples as guidance for replacing your income in retirement:

How much do you (really) need to save for retirement? (5)

Source: Bank of America, "Financial Wellness: 2020 Retirement savings guidance," 2020. Note: Calculations are based on obtaining 38% of income replacement from retirement savings (pre-tax) for middle income households of $40,000 to $100,000 annually.

For example, if 35-year-old Jane, who earns $70,000 a year, wants to see how her savings measure up to the best savers in her age group, she would just multiply her current salary by 1.4 and compare that with her current savings. Thus, to keep up with the "best savers and investors" in her peer salary group, she would need to have saved $98,000 ($70,000 x 1.4) so far.Footnote3

  1. To see where you are and what you can change to stay on track for the future:

    The Merrill Personal Retirement Calculator lets you view a projection of your savings to see if there is a gap between what you'll have and what you'll need when you finally retire and helps you adjust your strategy accordingly.

    With the calculator, you can see how potential adjustments to your savings goal, retirement date and investment choices can affect the size of your retirement savings in the future.

    But even if this checkpoint shows that you're behind where you might be, don't get discouraged by the big numbers you may see, advises Storey.

The difference 1% can make

A small change in savings could give you substantially more after 30 years.

How much do you (really) need to save for retirement? (6)

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Source: Bank of America, April 2021. This example is hypothetical and does not represent the performance of a particular investment. This example assumes annual returns net of fees and expenses. Your results will vary. Actual investing includes fees and other expenses that may result in lower returns than this hypothetical example.

Whatever you save and invest today for the long term can make a big difference in the future. "If you need to save more, even a 1% increase can mean a lot over time," he says.

Next steps

  • Get insights on what percentage of your salary you should contribute to your 401(k)
  • View 10 tips to help you boost your retirement savings — whatever your age
  • Learn how many IRAs you can have — and how many you might want
  • Looking for professional guidance? Learn more about Merrill Guided Investing or talk to a Merrill Financial Solutions Advisor near you.

Footnote 1 Based on estimates from the Health and Retirement study (HRS) and the Consumption Activities and Mail Survey (CAMS) in EBRI notes.

Footnote 2 Note: Housing costs include mortgage or rent payments, property insurance, property taxes, utilities and maintenance. They typically go down in retirement because mortgages are paid off, property taxes are less due to downsizing, and utility bills are lower with fewer people in the household.

Footnote 3 This number refers to financial assets minus personal (non-mortgage) debt. "Best savers and investors" refers to those whose Net Wealth to Income Ratio is in the top quintile.

Investing involves risk. There is always the potential of losing money when you invest in securities.

(Video) This Is Much Money You Should Have Saved For Retirement (By Age)

This material should be regarded as (general or educational) information on Social Security considerations and is not intended to provide specific Social Security advice. If you have questions regarding your particular situation, please contact your legal or tax advisor.



How much do you (really) need to save for retirement? ›

By age 50, you would be considered on track if you have three to six times your preretirement gross income saved. And by age 60, you should have 5.5 to 11 times your salary saved in order to be considered on track for retirement.

Can I retire at 40 with $2 million dollars? ›

Retiring at 40 with $2 million is possible, though it is a lofty goal, especially if you don't have a large inheritance or some other windfall. But it can be done if your income is high sufficient and if you are aggressive with your savings strategy.

Can I retire at 55 with $1 million? ›

Yes, you can retire at 55 with one million dollars. You will receive a guaranteed annual income of $56,250 immediately and for the rest of your life.

Can I retire at 60 with 500k? ›

The quick answer is “yes”! With some planning, you can retire at 60 with $500k. Remember, however, that your lifestyle will significantly affect how long your savings will last.

What percentage of US population has $2 million dollars? ›

Additionally, statistics show that the top 2% of the United States population has a net worth of about $2.4 million. On the other hand, the top 5% wealthiest Americans have a net worth of just over $1 million. Therefore, about 2% of the population possesses enough wealth to meet the current definition of being rich.

How many people have $3,000,000 in savings? ›

1,821,745 Households in the United States Have Investment Portfolios Worth $3,000,000 or More.

What is the average 401k balance for a 65 year old? ›

Average and median 401(k) balance by age
AgeAverage Account BalanceMedian Account Balance
2 more rows
Jan 20, 2023

Can I retire at 55 with $3000000? ›

Yes, you can retire at 55 with three million dollars. At age 55, an annuity will provide a guaranteed income of $168,750 annually, starting immediately for the rest of the insured's lifetime.

Do most people retire with a million dollars? ›

Putting that much aside could make it easier to live your preferred lifestyle when you retire, without having to worry about running short of money. However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.

How much do I need to retire if my house is paid off? ›

One rule of thumb is that you'll need 70% of your pre-retirement yearly salary to live comfortably. That might be enough if you've paid off your mortgage and are in excellent health when you kiss the office good-bye.

How much Social Security will I get if I make $25000 a year? ›

If you earn $25,000 this year, $1,880 of your benefits would need to be withheld (i.e. ($25000 - $21240)/2). Therefore, if your monthly benefit amount is $1,886, Social Security would need to withhold roughly one full month of your benefits.

Can I retire at 60 with $800,000? ›

Can I retire at 60 with $800k? Yes, you can retire at 60 with eight hundred thousand dollars. At age 60, an annuity will provide a guaranteed level income of $42,000 annually, starting immediately, for the rest of the insured's lifetime. The income will stay the same and never decrease.

What net worth is wealthy? ›

You might need $5 million to $10 million to qualify as having a very high net worth while it may take $30 million or more to be considered ultra-high net worth. That's how financial advisors typically view wealth.

What net worth is considered upper class? ›

People with the top 1% of net worth in the U.S. in 2022 had $10,815,000 in net worth. The top 2% had a net worth of $2,472,000. The top 5% had $1,030,000. The top 10% had $854,900.

What is considered wealthy in America? ›

Based on that figure, an annual income of $500,000 or more would make you rich. The Economic Policy Institute uses a different baseline to determine who constitutes the top 1% and the top 5%. For 2021, you're in the top 1% if you earn $819,324 or more each year. The top 5% of income earners make $335,891 per year.

How many Americans have $5 million in savings? ›

How many $4 or $5 millionaires are there in the US? Somewhere around 4,473,836 households have $4 million or more in wealth, while around 3,592,054 have at least $5 million. Respectively, that is 3.48% and 2.79% of all households in America.

How many Americans have over $100,000 in savings? ›

Most Americans are not saving enough for retirement. According to the survey, only 14% of Americans have $100,000 or more saved in their retirement accounts. In fact, about 78% of Americans have $50,000 or less saved for retirement.

How many people inherit $1 million dollars? ›

21% of millionaires received some inheritance, but only 3% received an inheritance of $1 million or above. 79% of millionaires did not receive any inheritance from their family or relatives.

What is the average Social Security check? ›

Average Social Security retirement benefits in 2023

Average payments for all retirees enrolled in the Social Security program increased to approximately $1,827, according to the Social Security Administration (SSA).

What is a healthy 401k by age? ›

By age 40, you should have three times your annual salary already saved. By age 50, you should have six times your salary in an account. By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary.

How many Americans have no savings for retirement? ›

More than ever, Americans who desire a “comfortable” retirement must squirrel away money in a retirement account. Yet nearly half of private-sector employees, 57 million Americans, have no option to save for retirement at work.

What is a good net worth to retire at? ›

“Several experts on retirement have given various estimates about how much you need to save: close to $1 million, 80% to 90% of your yearly income before quitting work, and 12 times what you used to make annually.”

What age can you retire with $2.5 million? ›

Retiring at 55 with $2.5 million is certainly feasible, as evidenced by the fact that this is far more than the vast majority of people have when they stop working. Only about 1 in 10 retirees have even $1 million saved, according to the Federal Reserve's Survey of Consumer Finances.

How much do most Americans retire with? ›

The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.

Can I live off interest on a million dollars? ›

Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.

How many Americans have $1 million in 401k? ›

The number of 401(k) millionaires in Fidelity-managed plans is relatively small, just shy of 1.4 percent out of 21.5 million accounts. That segment peaked in 2021, at 442,000, with a median balance of $1.3 million, according to Mike Shamrell, vice president for workplace thought leadership for Fidelity.

Should seniors pay off their mortgage? ›

Key Takeaways. Paying off a mortgage can be smart for retirees or those just about to retire if they're in a lower-income bracket, have a high-interest mortgage, or don't benefit from the mortgage interest tax deduction. It's generally not a good idea to withdraw from a retirement account to pay off a mortgage.

Do most retirees have their homes paid off? ›

Many Retired People Don't Expect to Pay Off Mortgages

Traditionally, homeowners looked forward to paying off their mortgage before retirement and living out their golden years without the heavy burden of a monthly house payment. But that scenario is becoming less common, according to a recent survey.

How many retirees still have a mortgage? ›

More Than 10 Million People 65 and Older Have a Mortgage — Here's Where They Make up the Largest Share of Homeowners.

What is the Social Security 5 year rule? ›

You must have worked and paid Social Security taxes in five of the last 10 years. • If you also get a pension from a job where you didn't pay Social Security taxes (e.g., a civil service or teacher's pension), your Social Security benefit might be reduced.

Is Social Security based on the last 5 years of work? ›

We base your retirement benefit on your highest 35 years of earnings and the age you start receiving benefits.

Is it better to take Social Security at 62 or 67? ›

You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.

Is $2 m enough to retire at 60? ›

Yes, for some people, $2 million should be more than enough to retire. For others, $2 million may not even scratch the surface. The answer depends on your personal situation and there are lot of challenges you'll face. As of 2023, it seems the number of obstacles to a successful retirement continues to grow.

Is $1 m enough to retire at 60? ›

So, can you retire at 60 with $1 million, and what would that look like? It's certainly possible to retire comfortably in this scenario. But it's wise to review your spending needs, taxes, health care, and other factors as you prepare for your retirement years.

Can I retire on 500k plus Social Security? ›

Yes, retiring at 55 with $500,000 is feasible. An annuity can offer a lifetime guaranteed income of $24,688 per year or an initial $21,000 that increases over time to offset inflation. At 62, Social Security Benefits augment this income. Both options continue payouts even if the annuity depletes.

How many years will $2 million dollars last in retirement? ›

A retirement account with $2 million should be enough to make most people comfortable. With an average income, you can expect it to last 35 years or more. However, everyone's retirement expectations and needs are different.

How early can you retire with $2 million? ›

Yes, you can retire at 50 with 2 million dollars. At age 50, an annuity will provide a guaranteed income of $125,000 annually, starting immediately for the rest of the insured's lifetime. The income will stay the same and never decrease. annually initially, with the income amount increasing to keep up with inflation.

How many millions do you need to retire at 40? ›

Retiring at age 40 is entirely feasible if you have accumulated $5 million by that age. If the long-term future is much like the long-term past, you will be able to withdraw $200,000 the first year for living expenses and adjust that number up for inflation every year more or less forever without running out of money.

Can you retire comfortably with $2 million dollars? ›

Yes, for some people, $2 million should be more than enough to retire. For others, $2 million may not even scratch the surface. The answer depends on your personal situation and there are lot of challenges you'll face. As of 2023, it seems the number of obstacles to a successful retirement continues to grow.

Can I live off interest on 2 million dollars? ›

Can you live off of $2 million in assets? The answer is yes, if you manage your investment portfolio smartly. One common option is to invest $2 million in an index fund. But you will still need to make absolutely sure that you have a rainy day fund since the market can be reliable over decades but fickle over years.

What age can you retire with $3 million? ›

The good news: As long as you plan carefully, $3 million should be a comfortable amount to retire on at 55. If you're ready to be matched with local advisors that can help you achieve your financial goals, get started now. To plan your retirement on $3 million, you'll need to face your mortality.

Why saving 10% won't get you through retirement? ›

Mathematically, 10% Just Isn't Enough

By saving 10%, your money would need to grow at a rate of 6.7% a year for you to retire 40 years from when you start. In order to retire early, after 30 years of contributing, you would need an unrealistically high rate of return of 10.3%.

Can a married couple retire on $2 million dollars? ›

Now for the big question: Can a couple retire with $2 million? Following the 4 percent rule for retirement spending, $2 million could provide about $80,000 per year. That's more than average.

What is a good monthly retirement income? ›

65-74 years: $59,872 per year or $4,989 per month. 75 and older: $43,217 per year or $3,601 per month.

How much interest does 1 million dollars make a month? ›

As noted above, the average rate on savings accounts as of February 3rd 2021, is 0.05% APY. A million-dollar deposit with that APY would generate $500 of interest after one year ($1,000,000 X 0.0005 = $500). If left to compound monthly for 10 years, it would generate $5,011.27.

At what age can you retire with $1 million dollars? ›

$1 million doesn't go nearly as far in retirement as it once did. In fact, a recent survey found that investors believe they'll need at least $3 million to retire comfortably. But retiring with $1 million is still possible, even as early as age 55, if you're smart about it.

How long will money last using 4% rule? ›

The rule of thumb is that using a 4% withdrawal rate, the money should last 25 years. However, it's important to note that this is a rough estimate, and actual results may vary based on your investments' performance, inflation changes, and other factors.


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