Saving for retirement can be a major challenge. Unfortunately, it's a challenge many aren't equipped to meet. That's true in part because the majority of Americans are making a major mistake. 

What is that big error that millions are making? Not figuring out how much money they actually need for retirement. 

Binder labeled retirement savings plan with calculator and coffee cup sitting near it.

Image source: Getty Images.

Close to 60% of Americans haven't even tried to calculate their retirement savings number

According to the Employee Benefit Research Institute, just 42% of Americans have tried to calculate the amount of money they'll need for retirement. This means close to 6 in 10 people have no idea what their end goal is. 

EBRI also found that fewer than one out of three Americans have tried to calculate how much they'll need for medical expenses after leaving the workforce.

So even among the 42% who have a retirement savings goal in mind, they may not be accurately estimating the financial demands of one of their biggest expenditures. 

Why is not calculating your retirement savings goal such a big problem?

Not calculating a target number for retirement savings is a big problem for a few reasons. 

If you don't know how much you're trying to save, it's impossible to figure out if you're on track.

You'll also have no choice but to depend on shortcut rules of thumb that might be out-of-date (such as saving 10% of income) or that may not apply to your situation. 

And without knowing the amount of money you need to retire, you'll have no idea when you actually have enough. You might believe you're ready to retire when your savings won't give you enough to live on for the rest of your life.

How can you calculate your retirement savings goal?

There are lots of reasons why you may not know the target amount you need to save for your retirement. One of the big ones is that this calculation can be complicated. 

Fortunately, you can get a good idea of how much you need to save for retirement by estimating the amount of income you'll need and working backwards to determine the amount of invested funds required to produce it. 

If you'll need $50,000 and you plan to withdraw 4% of your invested funds in the first year of retirement, multiply $50,000 by 25 to see you need $1.25 million saved. If you plan to withdraw just 2% of invested funds to make absolutely sure you don't run out of money, then you'd need to multiply by 50 to see you need $2.5 million. 

Of course, you also need to know what income you'll need in retirement to do these calculations. You can figure this out in a few ways. If you're close to retirement, you can set an actual budget for yourself -- just don't forget to take taxes and healthcare costs into account.

If you're a long way off, you can estimate you'll need between 70% and 100% of your final salary to maintain your standard of living, depending on how aggressive or conservative you want to be. Figure out your final salary by assuming a 2% raise each year from now until your desired retirement age. So if you were making $40,000 now, you'd assume a salary of $42,840 next year and $43,696.80 in the next year, and so on until you've got your final salary.

Do your calculations ASAP to figure out your retirement savings goal

It will take a little effort to do the math to figure out how much money you'll need to retire. And you have to think about your desired withdrawal rate as well as how much income you want to live on as a senior. But it's worth taking the time.

Once you know what your retirement account balance needs to be, you can see if you're on track to achieve your goals or if a change needs to be made to your investing strategy. If you need to step up your savings, it's far better to know now than to get close to retirement and find out you don't have enough.