Retirement is a major life milestone, and it requires decades of preparation. While there are dozens of factors to consider before you retire, one of the most crucial is how much you'll need to save to enjoy your senior years comfortably.
One million dollars is a common savings goal among many workers. In fact, 44% of workers expect retirement will cost at least $1 million, according to a 2019 survey from Charles Schwab.
However, each individual is unique, so there's no "one size fits all" answer as to how much you need to save. Do you really need to save at least $1 million for retirement? Here's what you need to know.
How much will retirement cost?
How much you'll need to save will depend on several factors, including your future retirement expenses and how much income you can expect to receive from other sources, such as a pension or Social Security benefits.
As a general rule of thumb, you'll need roughly 60% to 70% of your pre-retirement income each year once you retire. So if you're currently earning, say, $60,000 per year, you can expect to spend around $36,000 to $42,000 per year once you retire.
This is only a guideline, however, and your savings needs could differ. If you plan to move to a different city once you retire, for example, that could dramatically affect your future spending. Or if you expect to travel frequently or pick up expensive new hobbies in retirement, you could end up spending even more than you do now.
It's also important to consider the not-so-fun expenses you may face in retirement, such as healthcare and long-term care costs. Even if you're eligible for Medicare, you'll still incur at least some out-of-pocket expenses. While you may not be able to predict exactly how much you'll spend, it's important to at least consider these costs as you're building your retirement budget.
How much do you need to save for retirement?
The good news is that most retirees are eligible for Social Security benefits, so you may not need to save as much as you think. That said, the average retiree only collects around $1,500 per month in benefits, so you may not be able to survive on Social Security alone.
To check your estimated benefit amount, you can create a mySocialSecurity account to view your statements. Here you'll be able to see your future benefit amount based on your real wages throughout your career. Keep in mind, though, that if you claim Social Security early, you'll receive a reduced benefit amount.
From here, you can come up with an estimate for how much of your retirement expenses will need to come from your savings. If you've determined that you'll spend, say, $40,000 per year in retirement and you'll be receiving around $18,000 per year from Social Security, you'll need to save enough to cover roughly $22,000 per year (assuming you don't have any other sources of income in retirement).
What's your savings goal?
The final step is figuring out how much you'll need to save by the time you retire. The easiest way to do this is to run your information through a retirement calculator.
Be as accurate as you can with your inputs here, because that will result in a more realistic result. It may also be helpful to run multiple calculations with different numbers to see how your results change. For example, if you're on the fence about whether to retire at age 62 or 67, run the calculator using both ages to see how much your savings needs will differ in each scenario.
For some people, $1 million may be a realistic savings goal. Others may need significantly more or even less than that to retire comfortably. By focusing on your unique situation and financial needs, you can determine how much you need to retire comfortably.