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How Much Do I Need to Retire?

If you’re wondering how much you need to retire, I like the way you’re thinking. You’re a step ahead of the game because, sadly, most people don’t even have a strategy for saving for retirement. They just lock in a certain age—maybe 65—and try to save as much as they can until then.  

But I’ve got a new way for you to look at this: Retirement isn’t an age. It’s a financial number. Once you know exactly how much you’ll need to live out your retirement dream, you can work to accomplish that goal and retire once you’ve reached it! But it’s up to you to make it happen. If you’re going to retire with plenty of savings and live the life you’ve always dreamed about, you need to create a plan now.

Let’s talk about the most important factors to keep in mind as you find your retirement number.

How Much Do I Need to Retire?

There’s no one-size-fits-all approach to retirement planning, because your situation is unique. As you work to create your retirement plan, there are five key factors that you need to consider before deciding how much money you’ll need in retirement.

1. Inflation

Inflation is the gradual rise of the general cost of living over time. It hovers around 3% every year. Now, this might not be a huge deal after a couple of years, but if you’re planning to live 20 or 30 years in retirement, you need to take inflation into account! If you spend $3,000 on your monthly budget in 2020, you would need over $7,000 by the year 2050 to have the same purchasing power!

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Inflation is one of the main reasons why you need to invest your money. You can’t just stuff it in a cookie jar and hope for the best. You need your money to actually grow and multiply, instead of sitting still for years! Run some numbers with our investment calculator to see how your money could grow over time if you invest it instead of simply save it.

2. Cost of Living 

Cost of living is about where you want to spend your dream retirement. You’ll need a lot more money if you’re going to retire in Manhattan vs. Little Rock, Arkansas! Most of the time, retirees want to move closer to family, or just be somewhere that’s more affordable. If you’re planning to relocate when you retire, check out our cost of living calculator to get a good sense of what to expect.

Here are the top costs you’ll need to consider when making your monthly budget:

  • Giving
  • Housing
  • Transportation
  • Food
  • Taxes
  • Health care

And speaking of health care…

3. Health Care Expenses

I hope you’re working hard right now to get out of debt so that you give yourself a head start in retirement. Some expenses will go down—like your mortgage—but you still need to create a retirement budget so you know exactly how much income you’ll need every month.

Here’s the main big-ticket item to plan for in retirement: health care costs. According to Fidelity, a couple retiring today will need about $285,000 to cover their health care expenses during retirement.1 If you spread that out over 25 years of retirement, that comes to $11,400 a year! Here are several ways you can prepare for high health care costs:

  • Apply for Medicare
  • Save up a large medical “emergency fund”
  • Open an HSA to start a tax-advantaged health care savings plan
  • And on your 60th birthday, get yourself a present: long-term care insurance

And if you’re planning to retire before you can claim these benefits, I’d encourage you to save up lots of cash in an HSA and make sure you have a good private insurance plan by the time you retire.

4. Social Security

You can calculate your Social Security benefits and include that number in your budget. But hear me on this: Social Security benefits are like the icing on the cake, not the cake itself. And by the time you retire, there might not be any icing left! Unless we see some major changes in policy, Social Security will only be fully funded until 2034.2

Social Security benefits are available starting at age 62, but the longer you wait to claim them, the more you’ll get. I encourage you to wait as long as you can so you can receive the full benefit. In the meantime, though, you need to make sure you’ve got enough saved through your other retirement investments to take care of yourself. Should you wait on Uncle Sam to swoop in and save the day? Nope! Grab your own cape.

5. Your Lifestyle

Spend some time dreaming about what your lifestyle will be like in retirement, then calculate how those choices will impact your nest egg number. If you want a simple, stay-at-home lifestyle, go for it. If you want to frequent Caribbean cruises and five-star restaurants, then you’re going to adjust how you save for retirement.

Here are a few questions that will help you start dreaming: 

  • How much do I plan to spend on travel every year?  
  • How much will I spend on family (kids and grandkids)?
  • Will I help pay for my grandkids’ college?
  • How much do I plan to spend on entertainment?
  • Will I donate time and money to churches or nonprofits that I care about?

And by the way, if you’re married, this is a conversation that you need to have with your spouse. Get on the same page about your retirement dreams so you both know where you’re headed!

Find Out Exactly How Much Money You’ll Need in Retirement

Everyone’s nest egg is different because everyone’s dreams are different. This isn’t about keeping up with the Joneses—it’s about getting a crystal-clear picture of what your later years will look like.

That’s why my team and I developed the R:IQ—a free retirement calculator that will show you exactly how much you’ll need to invest each month to make your dream retirement a reality. Get your number today!

Chris Hogan

About the author

Chris Hogan

Chris Hogan is a two-time #1 national best-selling author, financial expert and host of The Chris Hogan Show. He is a frequent guest on Fox News, Fox Business, Yahoo! Finance and the Rachael Ray Show. Since 2005, Chris has served at Ramsey Solutions, where he gives practical money advice on retirement, investing and building wealth. Learn More.

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