How Much Do You Need To Save For Retirement?

December 20th, 2017
26
If we manage our finances correctly, we'll be able to spend more time here during retirement.

[Editor’s Note: Thank you for your support this year. We are approaching 100,000 page views for 2017, and I want to continue writing great content for my readers. Let me know how to make the blog even better by filling out this short, 5-question survey. Thanks! -WSP]

One of the first personal finance questions people ask when they begin financial planning is “How much do I need to save for retirement?

Google “retirement calculator” and you’ll get many, many retirement calculators that will try to identify your “retirement number.” Enter just a few variables like your current age, current income, and retirement age, and these calculators will tell you how many millions of dollars you should aim to save for retirement.

The number you’ll get from common retirement calculators varies widely, and is shocking to many people:

CNN Retirement Calculator

Assuming a 30-year-old new attending makes $300,000 straight out of residency, the CNN retirement calculator assumes an eye-popping amount of money is required for retirement: $15.9 million.

Unless you’re planning to spend all of your time traveling to places like Navagio Beach in Greece during retirement, you probably don’t need $15.9 million like CNN recommends.

Vanguard Retirement Calculator

The Vanguard retirement calculator is a little bit more complex, requiring a bevy of variables including your current age, retirement age, current income, and expected retirement spending as a percentage of your current income. The default spending rate is 85% of your current spending.

Using their calculator, a physician who is currently making $300,000 a year should try to save $6,375,000 for retirement.

AARP Retirement Calculator

The AARP retirement calculator also has a base assumption that you will spend 85% of your pre-retirement income in retirement. They have an option to assume a more modest or more extravagant retirement, which would be 75% or 95% of your income, respectively.

According to the calculator, the “minimum needed to retire” for a 30-year-old new attending making $300,000 per year who plans to retire at 65 is $7,763,229.02.

How much do you really need to spend in retirement?

In my opinion, the retirement number estimates of these calculators are far too high.

While the assumption of spending 85% of your pre-retirement income might be reasonable for middle-income Americans, these assumptions break down for high-income professionals such as physicians.

Many physicians are already giving up 30% or more of their income to taxes. After including money to save for college and retirement, many physicians will spend less than 50% of their gross income during their working years.

Physicians can have a very nice retirement on 50% or less of their pre-retirement income, especially if they do not have mortgages or college tuitions to pay.

Dr. Jim Dahle at the White Coat Investor recently estimated that his annual budget is $150,000 a year, without a mortgage. For a physician making $200,000-$400,000 a year, 85% of pre-retirement income in retirement is probably way more than what most physicians will need to spend.

You can definitely afford to play golf with $140,000 in retirement spending.

How then should you calculate how much to save for retirement?

Instead of assuming that you will spend a certain percentage of your pre-retirement income in retirement, you should instead estimate how much money you will spend in retirement and then figure out how much you need to save in order to achieve that goal.

Estimating how much you need in retirement

It’s hard to predict how much you’ll need (or want) to spend in retirement. Hopefully you’ll spend much more of your income on discretionary items like travel and dining and less on bills such as a mortgage. But unfortunately, healthcare costs are significantly higher in retirement. For some retirees, going to doctor visits can feel like a full-time job!

A reasonable baseline number should be how much you spent in your working years. Assuming your kids are out of the nest and your mortgage is paid off or nearly paid off, you could end up spending less in your retirement. Also, many retirees spend more in the early years of retirement, than as their energy and health declines, they slow down and spend less.

Once you have your annual spending number, multiply it by 25 to get your retirement number. For example, if you currently spend $140,000 a year and plan to continue that spending rate in retirement, then you’ll need to save 25 times that, or $3,500,000, for retirement. This is based on the 4% rule that was popularized by Trinity University researchers in the 1990s. They found that if you spend 4% of your retirement nest egg each year during your retirement, there was a >95% probability that you would not outlive your retirement funds.

Now that I have my retirement number, how much money do I need to save each year to achieve my retirement goals?

There are many financial calculators and spreadsheets out there that you can use to project your net worth over time. For a simple baseline calculator to get you started, I’ve created a simple retirement calculator that can help you project how much you will need to save to meet your retirement goals.

All you need to do is enter your age, current net work, pre-tax and post-tax income, and annual spending, along with a rate of return, and it will let you know when, on average, you’ll meet your retirement savings goal. It assumes you’ll need 25 times your current spending in retirement.

(If you’re reading this on your phone, it’s best to turn your phone horizontally and view the spreadsheet in landscape mode.)

Conclusion

Online retirement calculators generally overestimate how much physicians need for retirement. This is because they assume retirement spending to be a percentage of current income, which overestimates the amount of money necessary for a great retirement. A better baseline estimate is to use your current spending, and then multiply this number by 25 to get your “retirement number.” To reach your retirement number, use my spreadsheet or write your own to estimate how to reach your savings goals.

What do you think? What’s your retirement number? How much do you think you will spend in retirement compared to your current spending or current income?

Poll: What's your retirement number?

26 COMMENTS

  1. I often find those calculators are too high also. It is quite interesting how they come.up with their numbers. The 4% rule is a good place to start and take it from there.

    Also congrats on the views. Seems like you are doing quite well.

    • GET RICH WITH BLANK ATM CARD, Whatsapp: +18033921735

      I want to testify about Dark Web blank atm cards which can withdraw money from any atm machines around the world. I was very poor before and have no job. I saw so many testimony about how Dark Web Cyber hackers send them the atm blank card and use it to collect money in any atm machine and become rich {DARKWEBONLINEHACKERS@GMAIL.COM} I email them also and they sent me the blank atm card. I have use it to get 500,000 dollars. withdraw the maximum of 5,000 USD daily. Dark Web is giving out the card just to help the poor. Hack and take money directly from any atm machine vault with the use of atm programmed card which runs in automatic mode.

      You can also contact them for the service below

      * Western Union/MoneyGram Transfer

      * Bank Transfer

      * PayPal / Skrill Transfer

      * Crypto Mining

      * CashApp Transfer

      * Bitcoin Loans

      * Recover Stolen/Missing Crypto/Funds/Assets

      Email: darkwebonlinehackers@gmail.com

      Text & Call or WhatsApp: +18033921735

      Website: https://darkwebonlinehackers.com

  2. This is a clear summary of the issues. It drives me crazy when totals are based on income rather than expenses. It leads to huge numbers like in the beginning of this post.
    In my case, I have never saved a fixed amount or percentage. My income fluctuates a lot based on the decisions I make. I keep my expenses fairly fixed with minimal annual increases. All other income gets reinvested. That method doesn’t fit well into a calculator but it is another way to get FI fairly quickly.
    In my opinion, people who think $4M or more isn’t enough have a spending problem.

    • A lot of it is about mindset about what a “doctor’s” lifestyle should be. $160,000 is obviously way more than anyone really needs to survive, but doctors see their colleagues enjoy a very nice lifestyle, and want to keep up with the Joneses, even if their finances cannot fully pay for it.

      When you see celebrities or athletes spend millions a year, it might seem ridiculous to everyone else, but they have extraordinary societal pressure to live a glamorous lifestyle, whether or not they can afford it in the long-term.

  3. I rarely post but I’m of the camp of expenses dictate outcome. A variable withdrawal rate on any retirement account is prudent imo. Best wishes to this WSP blog!

    • I’m certainly not saying you should withdraw a fixed amount in retirement — if you are willing and able to have a variable withdrawal rate in retirement, the amount you need to save declines. These calculators serve as a good starting point to model how much you might need to save for retirement. Many people will build more complicated spreadsheets or work with a financial advisor to fine-tune their savings requirements to their individual situations.

  4. Great post as usual, WSP. We have a slightly different approach. We already have picked out our retirement date effectively (the day the youngest child leaves to college). We are currently saving about 100k/yr for retirement and earmarking another 125k/yr or so for student loan repayment. When the loans are paid off, that money will be autoinvested in our brokerage account. As long as we don’t increase our spending we should meet our goal. If that number ends up being 4, 5, or 6 million – well, we will adjust our spending post retirement accordingly.

  5. it seems to me that income sources like pensions and Social Security ought to be factored into the equation, but many income models do not. This, self funded retirement income needed could be far less.

    • Excellent point. If you have a recurring, fixed payment (e.g. pension, Social Security), you can multiply that by 25 (using the 4% rule) and subtract that from your retirement number to get what you need to save through investments.

  6. My personal experience and situation has taught me that the timing of the Number is as important as the Number itself. We hit our original Number ($4M) a few years ago. (It was my Number because someone once told me it was a good Number to use.) However, with two kids to launch and the unpredictable outcome of that, no Number less than $10M seemed safe enough.

    As for estimating expenses in retirement, the cost of health care may be the largest single item and the one with the least clarity, casting a shadow on any early retirement plans.

  7. A great post! I guess I have falsely assumed physicians were working later these days (closer to 70). Maybe that’s because I’ve seen more and more physicians asking for policies designed to age 67 or age 70. Based on the stats here, it looks like age 64 (ish) is the average number. But, of course, as you mentioned, each retirement age for each individual will vary based on wealth and health and desire or not to keep trucking. Good stuff here!

  8. I’ve never really understood the 4% rule. I want to leave something for my kids, but I would also like to retire at a young enough age to enjoy my grand kids, travel some and just do what I want. Is the idea really only to live off the interest of my number and pass on the number to my kids?

    • This post explains the 4% rule in more detail. Essentially, using historical market returns, they found that if you withdraw 4% of your money adjusted for inflation and held a 50/50 stock/bond allocation, you were able to not outlive your money over 95% of the time. Early retirement may adjust the safe withdrawal rate lower, although if you have some flexibility in your spending, the 4% rule should be a good starting point. It turns out that you end up with, on average, more than double your starting retirement number when you die if you use the 4% rule, according to the study authors.

  9. I want to say a big thanks to Dr. Okosisi for helping me to win the lottery. I won ($1,000,000.00)

    My heart was filled with Joy and happiness when I won the lottery. All thanks goes to Dr Okosisi for his good work he did for me that made me win the lottery. It has been hard for me to earn a living over the years of hard labor and suffering. I always pray to God to help me find a way to hit the lottery, because that was all I put my hope on. I always play the lottery daily, buy different lottery tickets, pay for online tips and others, but all was in vain, no good result, until one day I found this great man Dr Okosisi. On the internet, he is a magic voodoo Doctor, who helps to cast the lottery spell, as was described in the article. I contacted him too because I want to hit the lottery. Dr. Okosis helped me to cast the spell, and behold I won ONE MILLION DOLLARS. Truly you are the best and your spell is genuine and costs no harm. I got my bills paid and my debt cleared. I am making this known to every one of you who have been trying all day to win the lottery, believe me this is the only way to win the lottery with a better price, this is the real contact we all have been searching for. Contact him now. WhatsApp number: +1 (901) 235-9551 Email: spellservicetemple@gmail.com

  10. My name is Tom Peacock from USA, I want to say thank you to Dr Emu for the good thing he has done for me, Though am not sure if this is the best forum to show my joy and happiness for what he has done for me but i can’t hide my happiness and my joy so i have to share it with people, my marriage got crashed about two years ago and i tried all i could within my power but to no avail. I saw a post and testimonial about the good things Dr Emu has been doing so I decided to give it a try. though he is always a busy man but when he responded back to my email, he gave me 48 hours for my marriage to be restored really just like he said my marriage was restored since then I am happy and i am living happily i am so grateful to Dr Emu you can always email him here: {emutemple@gmail.com} or WhatsApp: {+2347012841542}

  11. A real spell caster helped me change my husband heart to love and want me again.
    I’m Josie Wilson from USA. I was at the verge of losing my marriage when Dr.Excellent stepped in and rescued me. My husband had filed for divorce after an unending dispute and emotional abuses we both suffered due to misunderstandings. He left the house and refused to come back. I sought for Dr.Excellent knowing I don’t wish to suffer another penury due to divorce cases and losing my man. I complied with his work procedures which was very easy and he worked for me. The love and connection between me and my partner was restored and he came back and got the divorce case canceled. It’s all for a fact that Dr.Excellent is honest and transparent in helping people and you too reading this can get the solution you seek in restoring joy and happiness in your marriage or relationship. contact Dr.Excellent for help now..Here his contact. WhatsApp: +2348084273514 ,Email: Excellentspellcaster@gmail. com

  12. GET RICH WITH BLANK ATM CARD, Whatsapp: +18033921735

    I want to testify about Dark Web blank atm cards which can withdraw money from any atm machines around the world. I was very poor before and have no job. I saw so many testimony about how Dark Web Cyber hackers send them the atm blank card and use it to collect money in any atm machine and become rich {DARKWEBONLINEHACKERS@GMAIL.COM} I email them also and they sent me the blank atm card. I have use it to get 500,000 dollars. withdraw the maximum of 5,000 USD daily. Dark Web is giving out the card just to help the poor. Hack and take money directly from any atm machine vault with the use of atm programmed card which runs in automatic mode.

    You can also contact them for the service below

    * Western Union/MoneyGram Transfer

    * Bank Transfer

    * PayPal / Skrill Transfer

    * Crypto Mining

    * CashApp Transfer

    * Bitcoin Loans

    * Recover Stolen/Missing Crypto/Funds/Assets

    Email: darkwebonlinehackers@gmail.com

    Text & Call or WhatsApp: +18033921735

    Website: https://darkwebonlinehackers.com

  13. THANK YOU DR ISIKOLO COMING TO MY RESCUE AT MY WORST MOMENTS. His website (https://isikolotemple.com)
    My husband and I have been battling marital issues for the past 6 months and little did I know the family was the brain behind the problems we ever had. The issues escalated and he eventually moved out of the house. I was alone with my daughter and life was miserable without him by my side. I did all I could to end the problems but to no avail. So I had to seek help which led me to contacting DR ISIKOLO. Just as I have always wanted, he heard my cry and came to my aid. He resolved the problems we had and my husband and I came back together and it still amazes me when I get the result in 2 days as he promised. If you are having issues with your partner, contact him now and he won’t fail you as well because he is trusted and reliable. email him: isikolosolutionhome@ gmail.com or text him via WhatsApp: +2348133261196.

  14. THE POSSIBILITY OF GETTING YOUR EX PARTNER BACK IS GUARANTEED WITH DR ISIKOLO. CONTACT HIM NOW
    I never knew there was a great possibility for me to have my man back to me until I met DR ISIKOLO. It was really tough on me when my boyfriend left me for another lady. I was devastated and couldn’t get myself back. His friends and family did all they could to reunite us but it proved abortive. I was alone for some months and could not see myself loving another. So i had to seek help from DR ISIKOLO who gave me the privilege to ensure my heart desires was granted. He reunited us and the love and happiness was restored. His words is his bound and he never fails when he promises anyone 48 hours of getting the result which amazed me when my own result manifested. Don’t bother seeking help elsewhere. Contact him now. His email: isikolosolutionhome @ gmail.com or text him via WhatsApp: +2348133261196. Read more about him via his website (https://isikolotemple.com)

  15. TRACE AND RECOVER YOUR LOST CRYPTO THROUGH ULTIMATE HACKER JERRY.

    Learn more;Web http://www.ultimateshackjerry.com

    Last year I stumbled across a cryptocurrency platform Advertisement online and I felt compelled to watch them since I had little knowledge of how profitable cryptocurrency is. I was immediately intrigued by it and decided to invest with the investment firm., on my first trial, I deposited $113,000 to the platform.My profit had accumulated so quickly after 48hrs that I became more interested and decided to add $215,100 to my initial investment.on attaining my profit target I requested for withdrawals. This company then began asking for more funds to activate my withdrawals.This made me suspicious, so I decided to consult a Crypto Expert. I came across Ultimate Hacker Jerry who advised me that I had been scammed but was also an Expert in Crypto Recovery Services. This expert Ultimate Hacker Jerry was able to recover all my Crypto a total of $328,100.I must recommend this erpert to any Scam victim that has been defrauded and have your Crypto recovered back by Ultimate Hacker Jerry.

    CONTACT;Mail Ultimatehackerjerry@seznam. cz \
    Whatsapp +1(520)282-7151.

  16. Thanks to EthicsRefinance, I was able to recover a whopping $78,000 worth of bitcoin which had been lost due to a fraudulent investment scheme. Their expert team of analysts and investigators went above and beyond to track down the culprits and retrieve my stolen assets. Not only did they help recover my funds but they also provided me with valuable advice on how to safeguard my assets from future scams. Thanks to EthicsRefinance, I can now sleep peacefully at night knowing that my hard-earned assets are in safe hands. Highly recommended!
    you can also contact them via

    EMAIL: ethicsrefinance @gmail .com

    WEBISTE: www*ethicsrefinance*com

  17. I was unaware of the many conmen in the crypto world when I invested a huge amount of my savings into a crypto trading platform to make profits from my investments, little did I know that I was being cheated on my investments. The fake crypto platform refused to let me withdraw my money and insisted I pay a chunk of my money for insurance and other ridiculous fees. I thought I had lost everything until I was told about Firmwall Cyber Security Service, a well-known crypto recovery company and data security company, I contacted Firmwall Cyber Security immediately and provided them with the necessary information, and within a few hours, my crypto was released and I got back access to my account. I was truly amazed and I’m here to recommend their services to everyone who needs to recover crypto or has any issues with their crypto wallet.
    Their team can contacted via the following: E-mail(Firmwallcyber@techie.com) Web(https://firmwallcyber.wixsite.com/firmwall) What sapp(+ 1 937 542 0667)

  18. HOW I FINALLY RECOVERED MY LOST CRYPTO: I lost all my crypto to a fake investment scam to someone I met online. I started searching for help legally to recover my funds, and I came across a lot of Testimonies about HACKER STEVE. I contacted him, providing the necessary information and it took him and his team of experts about 36 hours to locate and help recover my stolen funds. I am so relieved and the best part was, the scammer was located and arrested by local authorities in his region. I hope this helps as many out there who are victims. I strongly recommend Steve professional services for assistance with swift and efficient recovery (Crypto, Credit card, Forex, NFT, etc) on Gmail: Hackersteve911@gmail.com | https://hackersteve.great-site.net/

  19. v Hey, guys!!! I have my loyalty. My blank ATM card can withdraw $5,000 per day. I got this from Mr. Georg last Wednesday and now I have €10,000 for free. The card withdraws money from any ATM and there is no name, it is not traceable and now I have enough money for me and my 4 children. I’m thrilled I met Mr. Georg because I met two people before and took my money not knowing they were scams. But I’m happy now. Mr. Georg sent the card through DHL and I got it in two days. Get one of him now. See, it’s giving out to help people, even if it’s illegal, but it helps a lot and no one ever gets caught. The card works in all countries worldwide. Hurry up and email via georgbednorzhackers @ gmail. com Text, call, or WhatsAp: +1(262)355-8285
    Other services offered were:
    Cloning ATM cards
    Hacking Bitcoin ATMs with malware cards
    Recovering Lost or Stolen Cryptocurrency
    Hacking Western Union transfers, MoneyGram transfers, Bank transfers, PayPal transfers, Cash app transfers
    Recover Hacked Social Media: Facebook, Instagram, Snapchat, TikTok, Gmail, Yahoo mail, and websites.

LEAVE A REPLY

Please enter your comment!
Please enter your name here