For example, to achieve the same standard of living, someone who will receive $5,000 per month between pensions and Social Security won't need to save nearly as much as someone whose only fixed income source is a $1,500 Social Security benefit.
The standard rule of thumb is that you'll need about 80% of your pre-retirement income to maintain the same standard of living. According to this rule, someone with a $100,000 salary would need about $80,000 in annual income after they retire.
This can be adjusted higher or lower, depending on your circumstances, and it may be a smart idea to consult with a financial planner to help with this step.
For example, if you plan to travel extensively or pursue expensive hobbies after retiring, you may want to aim for a higher level of income. Conversely, if you plan to live a simpler life in retirement, you may be able to get by with significantly less.
2. Figure out how much will come from Social Security and other fixed sources
Without getting too far into the weeds about how Social Security works, the first thing you should do when you have an income goal in mind is consider how much of it is going to come from fixed, reliable sources.
If you plan to retire years before you're eligible for Social Security, it's probably best to leave that out of your early retirement calculations. On the other hand, if you have any pensions or annuities that will kick in right away after you retire, they should certainly be taken into account here.
As an example, let's say that in Step 1, you determined you'll need $60,000 per year in annual income after retirement ($5,000 per month). If you can count on a $2,000 monthly pension, this means that you'll need to create an income stream of only $3,000 from your savings.