Fidelity Investments has estimated total savings at various ages that provide adequate retirement income. For example, at age 67 they say you need ten times your preretirement income. So, if you earned $100,000 just before retirement, you need a $1,000,000 nest egg. (the younger you retire, the larger multiple of earnings you need) That would provide an income for life starting at about $40,000 per year.
At age 67 and earning $100,000 Social Security estimates your annual benefit at $28,716.
That provides a total gross income of $68,716 in retirement.
Saving something for an emergency or contingency fund is still necessary after retirement so I’ll reduce retirement gross pretax income by 5% to $65,280.
Let’s say while working you saved 15% of income and paid 7.65% in FICA payroll taxes. That means before income taxes your gross take home pay was $77,350. In retirement it will be $12,070 less.
Will you actually spend that much less? Will you spend more?
Here are some variables I can think of:
- Where you live
- Do you plan to relocate and/or downsize to lower spending?
- Will you spend more on health insurance?
- Do you have savings/investments in addition to retirement accounts?
- Do you have a spouse entitled to Social Security?
- Will your spending in retirement include new things like travel, hobbies, etc.
NOTE: Fidelity has developed a series of salary multipliers in order to provide participants with one measure of how their current retirement savings might be compared to potential income needs in retirement. The salary multiplier suggested is based solely on your current age. In developing the series of salary multipliers corresponding to age, Fidelity assumed age-based asset allocations consistent with the equity glide path of a typical target date retirement fund, a 15% savings rate, a 1.5% constant real wage growth, a retirement age of 67 and a planning age through 93. The replacement annual income target is defined as 45% of pre-retirement annual income and assumes no pension income. This target is based on Consumer Expenditure Survey (BLS), Statistics of Income Tax Stat, IRS tax brackets and Social Security Benefit Calculators. Fidelity developed the salary multipliers through multiple market simulations based on historical market data, assuming poor market conditions to support a 90% confidence level of success.https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire