As retirement becomes increasingly expensive, it’s more important than ever to have a healthy nest egg. Between surging healthcare costs, longer lifespans, and an ever-increasing cost of living, most workers will need to save a substantial amount to retire comfortably.
But just how much should you save? One million dollars is a number often tossed around when it comes to setting saving goals, but do you really need a million-dollar retirement fund? It depends.
How far will $1 million go in retirement?
The amount you’ll need to have saved for retirement will depend largely on factors such as your age, your future expenses, and how many years you expect to spend in retirement.
In some cases, you may need well over $1 million to retire comfortably. If you expect to spend, say, $50,000 per year, that would add up to $1 million after 20 years — and that’s not even accounting for inflation.
Other retirees, however, may need less than $1 million to make ends meet. If you plan to continue working in retirement, for example, you won’t need to rely as heavily on your savings. Or if you don’t expect to spend decades in retirement, you might be able to live comfortably with a smaller nest egg.
Social Security benefits can also make it easier to retire on less, but keep in mind your monthly payments were only designed to replace around 40% of your pre-retirement income. That means you’ll likely still need to save a substantial amount on your own.
How much should you save?
There’s no set number as to how much is a good amount to save for retirement. Even lofty goals like $1 million won’t work for everyone, so you’re better off calculating your own individual needs rather than going by generic benchmarks.
To calculate your retirement saving goal, you’ll first need to consider how much you expect to spend each year in retirement. This number may be different than the amount you spend now, so think about how your lifestyle and spending habits may change after you leave your job.
Also, consider how many years you realistically expect to spend in retirement. Try to be as honest as possible with yourself here. While nobody knows exactly how long they’ll live, the more accurate your estimate is, the easier it will be to plan your future finances.
It may be wise to build a buffer into your savings goal as well. Unexpected expenses don’t stop once you retire, and it will be tougher to replenish your emergency fund when you’re living on a fixed income. Things like healthcare costs later in life can also drain your savings faster, so it could be a good idea to assume you’ll spend more than you think.
Putting it all together
Once you have an idea of how much you’ll spend in retirement, run your numbers through a retirement calculator to get an estimate of how much should aim to save. A retirement calculator can account for factors like inflation, giving you a better idea of how much you’ll need to help your savings last.
Keep in mind, though, that this is still an estimate. Life can be unpredictable, and nobody can say for certain how much retirement will cost. But the more you’re able to plan, the more prepared you’ll be heading into your senior years.
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