This article was revised on December 15, 2017. It was originally published on June 22, 2017.

"Let's be honest. I have enough money to never have to work again."
-- Emma Watson 

Harry Potter star Emma Watson made news in 2010 when she said she was surprised to learn that she was a millionaire, with a net worth at the time of $32 million. Well, she's expected by some to be 2017's highest-paid actress, thanks to getting a cut of Beauty and the Beast global earnings, so she still doesn't have to ever work again. But most of us are in a very different situation.

white dollar signs floating like clouds in the blue sky

Image source: Getty Images.

The average American needs to be socking money away for retirement. That's clear. Less clear is the answer to the "How much do I need to retire?" question, as it depends on a bunch of factors. Let's look at those factors and then review how you might figure out how much money you need for retirement.

Important factors

How much you need for retirement depends on the following factors:

Your expected expenses: If your home is paid off and your local tax rates are low, you will probably need less retirement income than someone who's still making rent or mortgage payments and who faces steep tax bills. Your expected health costs will play a role, too. According to Fidelity Investments, the average 65-year-old couple will pay $275,000 out of pocket on healthcare during retirement. And don't forget your discretionary spending -- do you plan to travel widely in retirement? To play a lot of golf? If so, you might need more income than someone who plans to do a lot of reading and jigsaw puzzles. 

Dial labeled "Risk," set to "minimum"

Image source: Getty Images.

Risk tolerance: If you're very risk-averse, then you'll probably want to be aggressive in your saving. If you can handle some risk, then the stock market is where your dollars will probably grow faster than in other places. If that makes you uncomfortable, you could stick to "safer" alternatives such as CDs or bonds, but you'll probably earn a much lower rate of return, requiring heftier investments.

Longevity: Rather obviously, if you expect to live a life that's above-average in length, then you'll need income for more years than someone with an average-length life. If you're very fit and you eat well and have many relatives who died in their 90s, you might want to aim for a big nest egg, as you stand a good chance of needing it to support you for a long time. Retiring at 65 and living to 95 means 30 years of retirement!

Inflation: Inflation is often ignored, but it can really shrink the purchasing power of your future dollars. If the income you live on in retirement is truly fixed and stays so for decades, you may face difficulties in your later years. Over long periods, inflation has averaged about 3% annually, enough to have something that costs $100 now cost about $181 in 20 years.

Green road sign pointing to retirement

Image source: Getty Images.

So... how much do you need?

There are various rules of thumb that can help you think about how much money you'll need for retirement. One, for example, suggests that you aim for 80% of your income at the time of your retirement. Thus, if you earn $75,000 annually, you'd aim for an income of $60,000 in retirement. Of course, you might ratchet that up or down depending on your spending estimates.

Once you arrive at the income you expect to need in retirement, think about what it will be made up of. For example, if you're looking for $60,000 in annual retirement income to start, list your known income sources. Perhaps you're expecting $25,000 from Social Security and maybe you're lucky enough to have a pension that will pay another $10,000. If so, then you still need to make up the remaining $25,000. (You can get an idea of what to expect from Social Security by signing up for a "my Social Security" account at

Another rule of thumb, the 4% rule, suggests withdrawing 4% from your nest egg in your first year of retirement, and then adjusting that for inflation in each successive year. To find out how big your nest egg will need to be, multiply your desired income, $25,000, by 25, and you'll get the answer: $625,000. If you're very risk averse, you might plan to withdraw just 3% annually, in which case multiply by 33. If you have faith that inflation will remain low and the market will perform well for you, you might plan to withdraw 4.5% annually, in which case you'd multiply your desired income by 22.2, getting $400,000. Be careful taking on extra risk, though, as things don't always work out as hoped.

Creating the income you need

Once you know how much you'll need, think about where it will come from. One solid option is an immediate or deferred fixed annuity, which is kind of like buying yourself a pension. (Variable or indexed annuities can be very problematic, but fixed annuities are simpler, typically with fewer restrictions and fees.) Check out the kind of fixed annuity income you might buy at recent interest rates:



Monthly Income

Annual Income Equivalent

65-year-old man




70-year-old man




70-year-old woman




65-year-old couple




70-year-old couple




75-year-old couple





Alternatively, or in addition to that, you might build an income stream with dividends. If you have, say, $300,000 invested in healthy, stable, dividend-paying stocks with an overall dividend yield of 4%, you can look forward to $12,000 annually, or $1,000 per month, while expecting the dividends and the stock prices to rise over time, too.

There's no way to know exactly how much you'll need in retirement, but it's vital to give it some thought and to come up with an educated guess. It's smart to be relatively conservative, too, as life can throw some curves at you.

Here are a few well-regarded stocks with significant dividend yields:


Recent Dividend Yield



National Grid (NYSE: NGG)


General Motors (NYSE: GM)


Chevron (NYSE: CVX)


Pfizer (NYSE: PFE)


Novartis (NYSE: NVS)


Cisco Systems (Nasdaq: CSCO)


Procter & Gamble (NYSE: PG)


Phillips 66 (NYSE: PSX)


Source: Yahoo! Financial.

Finally, if you're thinking you've screwed up and aren't likely to get the retirement income you need, know that you probably still have time to improve your situation, if you save aggressively. Here's how much you might amass over several relatively brief time periods if your money grows by an annual average of 8%:

Growing at 8% For:

$10,000 Invested Annually

$15,000 Invested Annually

$20,000 Invested Annually

3 years




5 years




10 years




12 years




15 years




Data source: Calculations by author.

Don't leave your retirement income up to chance and Social Security. The average monthly Social Security retirement benefit was recently $1,375 per month, or about $16,500 per year, with the maximum benefit for those retiring at their full retirement age recently at $2,687 per month -- or about $32,000 annually. Take some time to plan how you'll generate the income streams you need and to read up on strategies to maximize Social Security. Planning, saving, and investing effectively now can make your retirement much more comfortable.