We read a lot about how Americans are woefully unprepared for retirement. Case in point: An estimated one-third of workers have no money set aside for retirement whatsoever. But while saving nothing at all for the future clearly isn't the way to go, the number you ultimately need to retire may not be as high as you've been told.


Focus on spending, not salary

First, let's get one thing straight: There's no universal amount all workers should aim to save. You'll hear people throw around $1 million as an ideal target, but in actuality, while $1 million might buy one person an extremely comfortable retirement, it may not be enough for another. The amount of money you'll ultimately need in retirement will depend on your goals and living expenses.

Now let's talk about the latter for a second, because while we are here to discuss the fact that you might get away with saving less than you thought you needed, you should also be aware of the retirement expenses that might catch you off-guard. Healthcare is probably the biggest one, especially since it's estimated that the average healthy 65-year-old couple retiring this year will spend $377,000 on medical care in retirement. Housing is another major expense for seniors, and while renting certainly has its drawbacks, owning a home in retirement can be a major financial burden -- even if your mortgage is already paid off. Most people spend 1% to 4% of their homes' value per year on maintenance and repairs. If your home is older, you might face the high end of that range, which means you'd be looking at $16,000 a year in upkeep for a $400,000 property.

That said, you might still get away with saving less than initially expected. You see, many financial experts and advisors talk about retirement savings in terms of replacement income -- meaning, the amount of money you need to replace the salary you were earning prior to retirement. In fact, I've done the same thing on multiple occasions (for example here, here, and here), where I've insisted that once you stop working, you'll need 70% to 80% of your pre-retirement income to maintain a reasonably comfortable lifestyle. And while I still stand by that advice, I'll also be the first to admit that it doesn't apply to everyone for one simple reason: Our salaries aren't necessarily indicative of how much we actually spend.


I'll explain. Often, when I write these articles, I operate under the assumption that I'm dealing with a readership of poor savers. This isn't meant to be judgmental, and it's also not a baseless hypothesis. An estimated 69% of Americans have less than $1,000 in a savings account. That, coupled with the retirement statistic I shared above, doesn't paint a pretty picture.

At the same time, just because most Americans aren't great savers doesn't mean that none of us save. And if you don't typically spend all, or most, of what you earn, then there's no need to calculate your retirement number based on a percentage of salary. Rather, you should think about your actual goals and expenses and attempt to come up with a savings target that will afford you the lifestyle you're hoping for.

Let's say you're approaching retirement and are earning $100,000 a year. If you typically spend all or most of your salary, then, yes, you may need as much as $70,000 to $80,000 per year of income in retirement. But if you're making $100,000 a year but are only spending half that amount, you can aim lower for retirement savings purposes.

Don't forget Social Security

Another thing to keep in mind is that you can factor in Social Security when figuring out how much to save. Now I warn people all the time that Social Security by itself won't provide enough retirement income for most seniors. Still, you should know that Social Security will make up about 40% of the average worker's pre-retirement income, so don't be afraid to fall back on those benefits. At the same time, don't make the mistake of thinking you can survive on Social Security alone.

As you work to come up with a retirement savings goal that's right for you, don't fixate solely on the percentage of pre-retirement income you're replacing. Rather, think about how much money you're actually spending today and how much you expect to spend in retirement, keeping factors like healthcare, living costs, and inflation in mind. With any luck, you'll arrive at a number that allows you to retire on time and sustain the comfortable lifestyle you've worked hard to enjoy.