How Much Do You Need for Retirement?

March 18, 2015

coupleMost fund investors – 92% according to the ICI –invest for retirement, but less than half of workers say that they’ve tried to calculate how much they might need for retirement.

Many people are putting money aside for retirement without any idea about how much they’ll actually need to retire comfortably.

And having a target number in mind is an important first step in retirement investing.

It can provide a useful framework for your overall retirement planning. It can help you to know if you are contributing enough to your retirement accounts, or if you’re invested in a way that will allow you to reach your goal.

A Simple Guideline

There’s no single way to estimate how much you’ll need in retirement, but one of the most well-respected and conservative approaches comes from the Trinity study, a 1998 study (updated in 2010) by three finance professors from Trinity University in Texas.

The Trinity study considered stock and bond returns from 1926-2009, and found that investors need a starting portfolio of 25 times their initial withdrawal rate of 4% (adjusted for inflation) to avoid running out of money in retirement. (The study also assumed that the retirement account was invested 50% in stocks or stock funds).

So one simple way to determine how much you’ll need to retire is to take the amount of money you currently need to live on each year and multiply that by 25. This means that if you need $60,000 a year today, you’d need $1,500,000 to live on in retirement.

A More Detailed Approach

A more detailed approach is to take the amount you currently need to live on—in this example, $60,000—and consider what percentage of that income you’ll need in retirement.

Studies find investors need to replace anywhere from 65-85% of their current income in retirement because once they retire, they won’t be contributing to their retirement accounts once they retire, and they may have lower income taxes.

For example: if you need $60,000 a year today and you assume that you’ll need 75% of this income in retirement, or $45,000. This $45,000 is in today’s dollars, and over time, inflation will take a toll. When you adjust this number for inflation (assuming an inflation rate of 3% a year over 25 years), you’d need $90,000 by the time you retire.

Of course, not all of this $90,000 needs to come from your retirement investment account.

You’ll likely have some additional sources of income in retirement, such as a pension plan and/or social security so subtract that from the $90,000. (Social security benefits will vary, but you can get an estimate of your social security benefits at

If you’ll get $30,000 a year from a pension or social security that means your retirement investment account will need to provide $60,000 a year. When you multiply that $60,000 by 25, you get to $1,500,000.

The goal number you come up with may be larger than you expected, but most people would rather have too much money in retirement than too little

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