Calculate your total income in retirement
As you try to work out how much you’ll need in savings to retire with the spending rate you want, gather information on all the sources of income you’ll have once you stop working.
For many folks, Social Security payments tend to be a large chunk of income. According to Gallup’s 2024 Economic and Personal Finance survey, around 59% of retirees say that Social Security makes up a large portion of their retirement income.
Many may also have other sources, like employer-sponsored retirement accounts like 401(k)s, annuities, pensions and IRAs.
You’ll also need to consider factors that will affect this income.
For one, how much you pay into Social Security will affect how much you receive, as well as when you choose to receive benefits. If you claim your benefits starting at age 62, the amount you receive will be lower than someone who starts claiming them at 67 or 70.
Your portfolio allocation — the types of investments you hold — in your retirement or brokerage accounts could also affect how much you will have by the time you’re ready to retire.
While investing in more volatile investments may give you an opportunity to earn more in returns, you could also risk more losses as well. Once you stop investing in these accounts, any market downturns may have a huge impact, since you don’t necessarily have time to recover from them.
Let’s not forget when you retire will have an impact on what it’ll take for you to comfortably take out $10,000 a month without running out of money. The average retirement can last decades, so the earlier you retire, the more you may need to have invested to make your money last.
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Learn MoreHow much you need to save for a comfortable retirement
Most experts use the 4% rule as a general guideline to determine how much you need to have saved for a comfortable retirement. William Bengen, a now retired financial adviser, first came up with this “rule” back in 1994 to help retirees understand how much they can withdraw safely from their accounts without outliving their funds.
The rule is simple: your balanced retirement portfolio should last you 30 years if you withdraw 4% in the first year and then adjust the amount each year after that based on inflation.
So if you wanted to spend $10,000 per month in retirement, it would mean you’ll need to have around $3 million invested. Though if you’re factoring Social Security payments and other regular income sources, this amount could be less.
Some also look towards Jonathan Guyton and William Klinger’s "guardrails" framework to determine how much you can withdraw safely and in turn, the amount you’ll need saved for retirement.
With this framework, you choose an initial withdrawal rate — which could be anywhere from 4% to 6%. Depending on market returns, you could increase or decrease your withdrawal by 10%. That way, you can make sure that you have enough money to last you no matter how the markets perform.
Keep in mind these rules and guidelines are just that, guidelines. Morningstar recently said the safe withdrawal rate for its base case (30-year time horizon is 3.7%, 90% probability of success, 50% equity weighting) this year is 3.7%. Suze Orman has called the 4% rule “very dangerous.”
It may be a smart idea to speak with a trusted financial adviser to take a look at your current financial situation and retirement goals to see what approach works best for you.
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