"How much do I need to retire?" is one of the most common money questions — and one of the hardest to answer with a single number. Everyone's retirement looks different. The right savings target depends on when you plan to retire, how you want to live and what other income you'll have. The good news is that you can build a realistic estimate with a few practical steps.
Start by estimating your retirement expenses. Many people find that their spending changes in retirement: commuting costs may drop, while travel, hobbies and healthcare may rise. Reviewing your current budget and adjusting each category for retirement gives you a more personal estimate than any general rule of thumb.
Account for every income source
Next, list the income you expect in retirement. This may include government retirement benefits, pensions, rental income or part-time work. Subtract this expected income from your estimated expenses. The gap is the amount your personal savings will need to provide each year.
Once you know that annual gap, you can estimate how large your savings need to be. A common approach is to plan a sustainable withdrawal rate, which helps your savings last throughout retirement. Keep in mind that a longer retirement, rising prices and market ups and downs all affect how far your money goes.
If the target feels large, remember that time is on your side. Regular contributions to workplace retirement plans and individual retirement accounts, especially when they capture any employer match, can grow significantly over the years. Increasing your savings rate a little each time your income rises helps you make progress without a dramatic change to your lifestyle.
It's also wise to plan for the unexpected. Healthcare costs, home repairs and helping family members can all affect your retirement budget. Building some flexibility into your plan — and keeping an emergency fund separate from retirement savings — makes your strategy more resilient.
Check your progress regularly
Retirement planning isn't a one-time calculation. Review your savings, expected expenses and investment mix at least once a year and after major life changes. Small adjustments made early are much easier than large ones made close to retirement.
Finance Wealth Source helps clients estimate their retirement needs and build a plan to reach them. Book a retirement planning session to find your number.