Figuring out how much you really need to retire depends on several factors – your age, lifestyle, and income expectations in retirement. The average retirement age in the U.S. is about 62, but many aim to retire earlier or later depending on financial readiness. Given the average life expectancy of around 79 years, a 62-year-old would need retirement savings to last at least 17 years or more.
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Estimating Retirement Needs
A common rule of thumb is to replace 70% to 80% of your pre-retirement income annually. One popular approach is the “4% rule,” which suggests you can safely withdraw 4% of your retirement savings each year. To apply this rule, you multiply your expected annual spending by 25. For instance, if you expect to spend $40,000 a year, you’ll need $1,000,000 saved by the time you retire.
Here’s a simplified example:
- Annual spending: $36,000
- Apply 4% rule: $36,000 / 0.04 = $900,000
If Social Security or pensions cover $18,000 of that amount, then you only need to fund the remaining $18,000 yourself, which would require $450,000 in savings.
Fidelity suggests milestones like saving:
- 1x your salary by age 30
- 3x by age 40
- 6x by age 50
- 8x by age 60
- 10x by retirement (age 67)
Traditional vs. Early Retirement
Retiring early significantly changes the math. For example:
- A 55-year-old retiree may need funds to last 30+ years.
- Social Security benefits are reduced if claimed before age 67 (about 30% less if taken at 62).
- Medicare begins at 65, so early retirees must cover health insurance, which can be expensive ($800 to $1,100 per month per person).
- Early withdrawals from retirement accounts (before 59½) may incur penalties unless specific conditions are met.
These factors make early retirement more expensive and require a larger nest egg.
Social Security & Other Income Sources
Social Security typically replaces about 40% of pre-retirement income. In 2025, the average benefit for retired workers is around $1,976 per month or about $23,700 annually. However, claiming benefits early reduces the amount. Delaying benefits up to age 70 increases the payout by about 8% annually past age 67.
Retirees should also consider other income sources like:
- Pensions
- Rental income
- Annuities
- Part-time work
These can help reduce the amount you need to draw from savings.
Healthcare and Other Costs
Healthcare is a major expense in retirement. A 65-year-old can expect to spend $165,000 on healthcare, not including long-term care. For couples, Medicare premiums alone may total nearly $400,000 over a lifetime.
Early retirees need to plan for:
- ACA health insurance premiums ($1,000+/month per person)
- Long-term care insurance
- Prescription drugs and out-of-pocket medical costs
Final Thoughts
How much you need to retire depends on when you retire, how long you live, and your lifestyle. To get a ballpark figure:
- Estimate your annual retirement spending.
- Subtract expected income from Social Security or pensions.
- Multiply the remaining amount by 25 (for a 4% withdrawal rate).
For most Americans, a target retirement savings of $1 million to $1.5 million is a good baseline. However, personal circumstances can raise or lower this amount. Use tools and calculators to tailor a plan that fits your goals.