Here's How Much You Need to Save for Retirement if Your Salary Is $100K

If you earn a six-figure salary, how much will you need in savings in order to retire comfortably? $1 million? $2 million? More?

Unfortunately, there isn't a one-size-fits-all answer to this question. There are too many variables that should be included from your personal situation, and there's absolutely no way to predict how factors like inflation and investment performance will affect your nest egg after you retire.

With that in mind, there are some steps you can follow to determine how much you should aim to save. Using a $100,000 annual income, let's walk through the process and look at an example of how someone at this income level might determine their retirement target.

It's all about income

Many people think of a dollar amount they want to save. $1 million is a common retirement goal, just to name one example.

However, you shouldn't think of how much money you need. Consider how much money will provide the level of sustainable income you'll need in retirement.

Most financial planners (including myself) suggest that the average person will need about 80% of their pre-retirement income to maintain the same lifestyle after they retire. The idea is that you won't need quite as much, as you'll no longer need to save for retirement and there are some expenses you might no longer have -- such as costs involved with commuting to work. So, someone with a $100,000 salary should anticipate needing about $80,000 per year after they retire.

Of course, this is based on the average person, so adjust your income target higher or lower accordingly. For example, if you plan to travel extensively, you may need more. If you anticipate paying off your home and car before you retire and generally plan to live a modest lifestyle, you may be perfectly comfortable with less.

The 4% rule of retirement

The 4% rule of retirement says that in order to minimize the chance you'll run out of money, you should withdraw 4% of your savings in your first year of retirement and adjust the amount each year for cost-of-living increases. So, if you have $1 million in retirement accounts, $40,000 per year would be a safe withdrawal rate.

Admittedly, this rule isn't perfect, but it's a great starting point for ballpark estimates of your retirement needs.

Consider other income sources

Before we go any further, it's important to consider other income sources. Social Security is the one virtually all retirees have, and there are other things like pensions, annuities, etc.

Let's start to put this together. With a $100,000 salary, the average person will need $80,000 in retirement income. If you anticipate $30,000 in annual Social Security income, this lowers the need from your savings to $50,000.

How much do you need to save?

We can easily estimate your income needs using the 4% rule. You can do this by simply multiplying your income goal by 25, and this will help estimate how much you'll need in savings to retire comfortably.

Continuing our example, someone who needs to sustainably withdraw $50,000 in annual income from their retirement savings would need $1.25 million in order to produce it.

How much should you save every month or year?

This is a much more complicated question than coming up with a savings target. There's no way to know how your investments will perform between now and when you retire, and your age plays a big factor. After all, someone who is 25 and wants to retire with $2 million will have a completely different savings need than someone who is 40 if both are starting from zero.

Having said that, a general goal for someone who is on track for retirement is to aim to save 10% of pre-tax income, not including any matching contributions your employer makes. If you have fallen behind or are getting a late start on retirement savings, it might be wise to bump that up a few percentage points.