The Most Important Retirement Chart You'll Ever See

There are lots of charts related to your retirement. For example, there might be a chart tracking the improvement in your golf game over time or a chart detailing when you will need to plant various plants in your garden. Those can be important, but not as important as the chart you'll find below -- because it will show you what you need to do to achieve your dream retirement.

This most important retirement chart is what you can refer to, once you know how big a retirement nest egg you need to amass, to see how to actually get there.

Image source: Getty Images.

Setting the stage -- how much money do you need to retire with?

Before finding out how much you need to save each year, have a target in mind -- how much money you need for retirement. That sum will vary from person to person, depending on factors such as where you live, whether you have any pension income in your future, your risk tolerance, and your expected expenses.

Take some time to jot down and add up all your expected retirement expenses, such as food, clothing, housing, and transportation -- and don't forget healthcare! Use that to come up with your best estimate of your needed income in retirement. Then add up your expected income streams, such as Social Security, and see what needed income is left. That's what you'll have to set up for yourself through savings and investments.

As an example, imagine that you want an annual income of $65,000 in retirement, and you expect to collect $25,000 from Social Security. (The average Social Security retirement benefit was recently $1,461 per month, or about $17,500 per year. There are ways to increase your Social Security benefits, too.) That leaves a shortfall of $40,000. How big a nest egg will generate that income? The imperfect-but-still-helpful 4% rule can help you with that. It says that if you withdraw 4% from your nest egg in your first year of retirement and then adjust that for inflation each year, your nest egg stands a good chance of lasting for 30 years.

The 4% rule is not only useful for estimating how much you can shave off your savings each year in retirement. If you flip it around, it can help you determine how much money you'll need in retirement. Invert that 4% and you'll get 25 (100 divided by 4 is 25). Multiply $40,000 by 25, and you'll arrive at $1 million, the nest egg you'll need if you want to apply the 4% rule. If you want to be more conservative and use a 3.5% withdrawal rate, multiply the $40,000 by 28.6, and you'll arrive at a goal of $1.14 million.

Image source: Getty Images.

The most important retirement chart

Without further ado, you'll find the most important retirement chart below. It shows how much you'll need to sock away annually or monthly if you want to amass a million dollars -- over several different periods of time. It assumes an average annual growth rate of 8%. (That's because the long-term average growth rate for the overall stock market is close to 10%, but for any given period of a decade or two, it can be significantly higher or lower than that.)

Source: Author calculations. 

The table shows you that if you're, say, 45 years old and you want to retire in 20 years at age 65, you'll have to sock away approximately $20,400 annually (or about $1,700 per month) in order to amass $1 million -- assuming your money grows at an average annual clip of 8%. Obviously, you'll get there faster if you are lucky or smart enough to do better than 8%, and you'll amass less if your money grows more slowly.

The table also offers other lessons, chief among them the immense value of starting to save and invest for retirement as soon as you can -- because young people have time on their side, and dollars can grow much more powerfully if they have a long period in which to do so. If you compare the numbers in any two adjacent rows -- representing a seemingly modest difference of five years -- you'll see a big difference in required investment sums.

You can also see, via the table, the power of delaying retirement for a few years. If you're 50 now and you want to retire in, say, 15 years, at age 65, you may see that your odds of amassing enough money are slim. But if you can postpone retirement by five years, to age 70, you'll only have to save and invest $1,700 or so monthly instead of nearly $2,900.

Keep in mind, too, that the table above shows what you need to save to amass $1 million. There's a good chance that you need a different-size retirement war chest, perhaps because you expect to receive a lot from Social Security and/or a pension or because you expect to have very high or low expenses in retirement. You can still use the table -- just divide or multiply the amounts as necessary. So, for example, if you need to amass $500,000, you would divide the needed investment sums in half.

The table also assumes that you have no savings and are starting to save and invest for retirement now. That is, sadly, the case for many Americans. (About 19% of workers aged 55 and older report having less than $1,000 saved for retirement, per the 2018 Retirement Confidence Survey.) You, though, may have some sizable savings. If you want to amass $1 million and you already have socked away $250,000, you'll need $750,000 more, so you can multiply the required savings sums in the chart by 0.75.

Spend some time with the chart, and crunch numbers that reflect your personal retirement situation -- how much you have already saved, how much income you'll need, how much income you expect from various sources, and how big a nest egg you want.