When you're earning a modest salary, the idea of someday having a retirement account with hundreds of thousands of dollars (or even millions) can seem far-fetched. A lot of people actually call it impossible. Nearly three in four near-retirees -- adults planning to retire in the next 10 to 20 years -- don't believe they'll ever really have enough money for retirement, according to recent research from Empower Institute.

Some of these individuals might be correct, especially if they got a late start on retirement savings, while others may actually be on track but feel overwhelmed because they're uncertain about how much they need. In either case, it helps to create a retirement plan, see how your current savings stack up to your goal, and then go from there.

Mature couple doing financial calculations

Image source: Getty Images.

How to figure out what you need for retirement

In order to figure out how much you need to save for retirement, you must know or estimate the following things:

  1. When you will retire.
  2. How long you will live.
  3. How much you'll spend annually in retirement.
  4. How much you already have saved.
  5. How much you can expect from other sources, like Social Security, a 401(k) match, or a pension.

Determining when you will retire and roughly how long you'll live is essential for figuring out how much retirement savings you'll need. You should plan to live until at least 90 if you're healthy, since the Social Security Administration predicts that one in three 65-year-olds today will live past 90, and one in seven will live past 95. It's up to you to decide when you want to retire, but know that if your initial retirement savings goal is not feasible, you may have to push your retirement date back a little further.

Knowing how much you'll spend each year in retirement is also tricky because you don't know what expenses will come up. The average household headed by an adult 65 or older spends a little over $50,000 per year, according to the Bureau of Labor Statistics. You can use this as your baseline and adjust your spending up or down as needed. It's always best to build in a cushion if you're worried about running out of money or if you plan to travel or make large purchases in retirement. 

You must remember to factor in inflation because costs will rise over time. Use 3% per year for your estimate. A retirement calculator can do this math for you. It'll also help you estimate how much your savings could grow between now and your retirement. It could be 7% to 8% per year, but it's best to use 5% or 6% as your estimated annual rate of return in case your investments don't perform as well as you'd hoped.

Finally, you have to know how much you already have saved and how much you can expect from other sources to figure out how much you still have to save on your own. Your retirement calculator should give you a place to indicate how much you already have saved. Once you enter all the information, it gives you an estimate of your total retirement cost and the amount you need to save per month. Subtract the money you expect from these other sources to figure out how much you need to save on your own each month to retire on schedule.

What to do next

Your next steps will depend on where you are in relation to your goal. You might realize that you're on track or doing even better than you expected, in which case you don't have to change anything at all. This might help you relax a little more knowing you're prepared.

If you're just a little bit off track, you can probably fix that by making some adjustments to your current budget. Look for areas to reduce your spending, like canceling services you aren't using and adjusting your thermostat to save on energy costs, and put the extra money toward your retirement savings

If you're really off track and you can't fix it with small lifestyle changes, you'll probably have to rethink your retirement plan. Delaying retirement is a wise choice because you'll give yourself more time to save while also reducing the savings you need. You might also plan to scale back some of your expenses in retirement, like traveling less or moving to a more affordable neighborhood. Explore a few different scenarios until you find one that you're comfortable with.

Uncertainty is the hardest part about saving for retirement. You can't eliminate that completely, but you can take away some of it by creating a retirement plan with an extra savings cushion and doing your best to reach that goal.