Estimate Your Needs
How much money do you need to retire? Follow these steps to come up with your savings goal.
Estimate how much you expect to spend during your retirement each year.
While everyone's situation is different, a safe approach is to plan on needing the same amount of income you have today. While certain costs, such as mortgages and work-related expenses, may decrease in retirement, others, such as travel and health care costs, may increase.
Add up your expected monthly income, excluding portfolio income:
- Social Security
Calculate the amount of retirement income you'll need from your portfolio each month.
- Estimate your annual spend, including taxes (from Step 1).
- Subtract your non-portfolio income (from Step 2).
- Subtract the appropriate level of income tax.
Determine how large your portfolio needs to be.
- According to the Schwab Center for Financial Research, if you want your portfolio to last 30 years, you should aim to have a portfolio that's 25 times as large as the amount you expect to withdraw in your first year.
Here's a sample scenario:
First-year spending goal (including taxes): $40,000
Less Social Security: $15,0001
So your first-year withdrawal is: $25,000
And 25 times your first-year withdrawal is: $625,000
In this example, your retirement portfolio target would be $625,000.