The Cost of a Comfortable Retirement

Retirement is something we all look forward to, whether we plan on spending more time with family and friends, pursuing our passions, or simply enjoying leisure activities. However, what often gets lost in the planning process is the cost of retirement. How much money will you need to maintain your quality of life for the next few decades?

Standard retirement planning rules of thumb

Financial experts have devised various rules of thumb to determine how much you need to save for retirement.

One standard piece of advice is to save 10 to 12 times your annual salary1 by the time you retire. So, for example, if your current salary is $120,000 per year, you should have at least $1.2 million saved up by the time you retire.

This rule of thumb focuses on savings. However, many people find it easier to think about retirement in terms of income rather than savings. This is because the amount of money you will be able to draw from investments and savings accounts depends largely on the performance of the markets and how much risk you're willing to take with your portfolio.

In approaching a calculation based on this rule, some financial experts recommend replacing 80% of your pre-retirement income.2 In other words, if you make $120,000 per year now, you'll need at least $96,000 per year to maintain your lifestyle in retirement. The idea is that you don't have to replace 100% of your income because you'll be able to eliminate certain expenses in retirement, including saving for retirement and commuting to work.

Whether you look at retirement planning from a savings or income perspective, it isn't necessarily a one-size-fits-all equation. Depending on your current living expenses and desired lifestyle, you may need to save more or less than these general guidelines recommend.

So let's look at a few essential factors that can help determine how much you'll need to support your desired quality of life in retirement.

Social Security

The amount you can expect to receive in Social Security benefits will depend on earnings during your working years. The maximum monthly benefit for someone who retires at full retirement age in 2023 is $3,627 per month3 or $43,524 annually. However, this amount will be lower if you retire early or higher if you delay claiming Social Security benefits until age 70. Maximum benefits change each year because they generally track inflation.4

You can find a personalized estimate of your Social Security retirement benefits in your Social Security Statement, which you can get online by logging into your my Social Security5 account. The statement shows your personalized benefit estimates at multiple ages, depending on when you want benefits to start.

Social Security alone likely won't be enough to maintain your current lifestyle in retirement. For instance, if you earn $120,000 and start claiming benefits this year at full retirement age, Social Security would only cover about 36% of that amount.