Step 1: Estimate your yearly spending
Think about what you will spend in retirement: housing, food, healthcare, travel, and so on. Many people aim for 70% to 80% of their pre-retirement income as a starting point.
Step 2: Use the 4% rule
A common guideline suggests you can withdraw about 4% of your savings in the first year of retirement, then adjust for inflation. To find your target, multiply your yearly spending by 25.
If you expect to spend $40,000 per year from your savings, you would need about $1,000,000.
Step 3: Work backwards to a monthly goal
Suppose you invest $500 per month and earn an average 7% annual return (a long-term assumption, not a guarantee). After 30 years you would have roughly $610,000, even though you contributed only $180,000 yourself.
Why starting early matters
If you wait 10 years and invest the same $500 per month for only 20 years, you end up with roughly $260,000. Waiting ten years costs you more than half of the result.
Run your own numbers
Enter your age, savings, contributions, and expected return into a retirement calculator to see if you are on track. To check how fast your money could grow, try the compound interest calculator.
Ways to close a gap
- Increase your contribution by 1% each year.
- Take full advantage of any employer match.
- Keep investment fees low.
- Delay retirement by a year or two if needed, since it adds savings and shortens the withdrawal period.
This article is for general information only and is not financial advice. Projections are estimates and actual returns will vary.
