The topic of retirement is something that keeps most people up at night at some point in their career. You know you’re supposed to be saving. You also know the number is supposed to be big. But when you actually try to pin down what “enough” looks like for your specific situation, the answers you find online range from vaguely reassuring to downright terrifying. They also feel very generic.
The truth is that there’s no single number that works for everyone. The amount you need depends on when you want to retire, where you plan to live, what kind of lifestyle you want, how your health holds up, and a dozen other variables that are impossible to predict with certainty.
But that doesn’t mean you can’t get close. The process simply requires more honesty and specificity than most people give it.
The Old Rules Don’t Work Anymore
For years, the standard advice was to save a million dollars, and you’d be fine. That number got repeated so often that it became a kind of shorthand for retirement readiness. The problem is that a million dollars doesn’t go as far as it used to, and depending on your lifestyle and location, it may not go far enough at all.
Inflation has steadily eroded purchasing power over time. Healthcare costs have risen dramatically and continue to climb. Then, when you consider that people are living longer, it means retirement savings need to stretch over more years than previous generations planned for. A retirement that lasts 25 or 30 years requires a very different financial foundation than one that lasts for just 15.
The old rule of thumb that you need about 80 percent of your pre-retirement income each year is a reasonable starting point, but that’s all it is. Your number depends on your actual lifestyle and unique circumstances.
Getting Specific About Your Number
The most useful thing you can do is build your retirement estimate from the ground up. You’ll want to base it on your own expected expenses rather than working backward from a generic multiplier.
Start with housing:
- Will your mortgage be paid off by the time you retire?
- Will you downsize?
- Will you relocate to a lower-cost area?
Housing is typically the largest line item in a retirement budget. What it looks like for you changes the overall number significantly.
Healthcare is the next major category.
- Medicare covers a lot, but not everything.
- Supplemental insurance, prescription costs, dental, vision, long-term care, etc.
Healthcare expenses in retirement are consistently higher than people expect, and underestimating them is one of the most common planning mistakes.
Don’t Forget About Taxes
This is where a lot of retirement planning falls short. People focus on the total balance in their accounts without thinking carefully about how much of that money they’ll actually keep after taxes. A million dollars in a traditional 401(k) is not the same as a million dollars in a Roth IRA.
Traditional retirement accounts are taxed as ordinary income when you take distributions. Roth accounts are funded with after-tax dollars, meaning qualified withdrawals are tax-free. And then there are taxable brokerage accounts that have their own rules around capital gains. Plus, Social Security benefits may be partially taxable depending on your total income in retirement.
Social Security Is Part of the Picture
Social Security was never designed to be someone’s entire retirement income, but it’s still a meaningful piece of the puzzle. Understanding what you’re likely to receive and when to claim it matters.
Claiming at 62 gives you the earliest possible access but permanently reduces your monthly benefit. Waiting until 67 gives you your full benefit. Delaying until 70 increases it further. The right choice depends on your health, other income sources, and overall plan.
You can check your estimated benefit at any time through the Social Security Administration’s website. Knowing that number and building it into your retirement projection gives you a more accurate picture of how much your savings actually need to cover on their own.
Don’t Plan in a Silo
One of the biggest mistakes people make with retirement planning is trying to figure it all out alone. Retirement isn’t just a savings question. It’s a tax question, investment question, insurance question, healthcare question, and estate planning question all baked into one. Treating those as separate problems usually means leaving money on the table somewhere.
Working with a tax-smart financial advisor who has a holistic approach to retirement planning is a good idea. The right advisor doesn’t just help you pick investments. They look at your full financial picture and build a strategy that coordinates your savings, investment allocations, tax exposure, etc. and turn it into a cohesive plan that makes sense for you.
Start Where You Are
If you’re behind on retirement savings, the worst response is to avoid looking at the numbers and take an “ignorance is bliss” approach. The second-worst response is to panic and try to make up for lost time by taking risky bets.
The best response is to get honest about where you are. Be specific about where you need to start closing the gap with whatever tools and timeline you have available. It’s never too late to begin planning!